LONDON: The dollar rose against a basket of currencies on Tuesday, underpinned by upbeat comments from two influential Federal Reserve officials who stressed the positive impact on the US economy from a decline in oil prices.
While that will keep alive expectations that the Fed may start to tighten policy sometime in the middle of 2015, both the European Central Bank and the Bank of Japan are grappling with the threat of deflation and the sharp fall in oil prices has only added to their concerns.
The growing divergence between the monetary policy outlooks of the Fed on one hand and the ECB and the BoJ on the other will be a main driving factor in currency markets in the near term, traders said.
Fed Vice Chairman Stanley Fischer and New York Fed President William Dudley said at separate events on Monday that soft oil prices would only temporarily dampen overall US prices. The pair painted a mostly rosy outlook, suggesting the Fed was not letting energy markets distract it from lifting rates.
The dollar index was up 0.3 percent at 88.231, helped by gains against the euro and the yen. US yields also moved up after Dudley said it was reasonable to expect a rate hike in mid-2015.
The rate-sensitive two-year Treasury yield climbed to 0.5158 percent. "For US yields to move higher we need to see a good payrolls number this Friday and not only that.
We need to see a pick-up in average earnings," said Niels Christensen, FX strategist at Nordea.
"That should see the dollar break out of its recent ranges both against the euro and the yen." Economists polled by Reuters see a November US jobless rate of 5.8 percent, unchanged from October, with 230,000 jobs being added. Average earnings are expected to pick up.
Commodity exporters' currencies fell towards recent lows after Monday's rebound in global commodity prices fizzled out, though the Australian dollar drew some support from a lack of dovish comments in the Australian central bank's policy review.
The bank, which as expected left poliicy unchanged, said a period of stability on rates would be prudent.
The Aussie dollar later pared gains and moved back towards Monday's four-year low of $0.8417.
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