Early trade in New York: Dollar gains as Fed's Clarida backs further rate hikes

The US dollar gained on Tuesday after Federal Reserve Vice Chair Richard Clarida backed further interest rate hikes but noted the importance of monitoring economic data as the US central bank approached a neutral stance. In a carefully worded speech that comes on the heels of another volatile stock market drop, Clarida stressed how difficult it was for the US central bank to determine both the neutral interest rate and the maximum level of unemployment.
It comes after Fed Chairman Jerome Powell last month said the Fed may raise interest rates above an estimated neutral setting as the "remarkably positive" US economy continues to grow.
"The Powell speech on the overshoot of neutral was construed as a very hawkish delivery," said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. "The Fed has been gently walking that back since."
A speech by Powell on Wednesday and minutes from the Fed's Nov. 7-8 meeting on Thursday will be evaluated for further indications of how many more times the US central bank is likely to hike interest rates.
The dollar index climbed earlier on Tuesday after US President Donald Trump said he expects to raise tariffs on $200 billion in Chinese imports to 25 percent from 10 percent currently.
Trump and Chinese President Xi Jinping are due to meet at a G20 meeting in Buenos Aires on Nov. 30 to discuss contentious trade matters.
"If there's no breakthrough, that makes it more likely that more tariffs will be imposed and that increases downside risks to trade," said Lee Hardman, a currency analyst at MUFG in London.