The dollar nudged higher on Monday as an influential US Federal Reserve official expressed confidence rising wages would help revive domestic inflation which has shown signs of softening recently. The yen weakened against the greenback and euro following Friday's Bank of Japan meeting where officials downplayed the likelihood it would begin to roll back emergency stimulus for the economy.
On Monday, New York Fed President William Dudley's comments came with doubts whether stubbornly low inflation, which has been stuck below the central bank's 2-percent goal, would allow policy-makers to raise rates further the rest of the year. "The Fed doesn't seem to be too concerned about the recent pullback in the inflation data. They are committed to policy normalization," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
The Fed, as expected, raised key overnight borrowing costs by a quarter point last Wednesday and left the door open for another rate increase later this year. It also provided more details on its plan to reduce its bond purchases in a bid to shrink its $4.5 trillion balance sheet.
"Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2 percent," Dudley told a local business group in Plattsburg, New York. Traders raised their outlook on a rate hike by the Fed's Dec. 12-13 policy meeting to 45 percent from 41 percent late on Friday, CME Group's FedWatch tool showed.
An index, which gauges the dollar against six other currencies, was up 0.15 percent at 97.310. The euro was down 0.2 percent versus the greenback to $1.1174, while the dollar gained 0.4 percent against the yen at 111.32 yen. The single currency was up 0.2 percent at 124.39 yen, Sterling was 0.1 percent lower at $1.2761 higher ahead of the formal start of negotiations on Britain's planned exit from the European Union.