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US dollar rallies on Fed chief Yellen's speech

Investors remain uncertain amid Trump's protectionist rhetoric

HONG KONG: The US dollar rallied against high-yielding currencies and cemented gains against its major peers yesterday as dealers took a speech by Federal Reserve boss Janet Yellen as a hint that US rates will rise further this year.

A weaker yen helped Japanese stocks lead a broad advance across Asian markets as optimism was buoyed by Yellen's remarks on the economy, but traders moved cautiously ahead of Mr Donald Trump's inauguration.

In the two months after Mr Trump's November election win, the US dollar soared against all other currencies on expectations that his big-spending, tax-cutting plans will fan growth, ramp up inflation and force the Fed to lift borrowing costs.

But growing uncertainty in the past two weeks, made worse by a lack of policy detail from the president-elect, has sent investors scurrying back out of the US unit until they see signs of firm plans.

However, Ms Yellen breathed life back into the greenback yesterday with a speech in which she said the US economy was meeting the central bank's inflation and employment goals, and was confident it would push on.

"Yellen's comments reinforced the message that we have been getting from other Fed speakers that the economy is already strong even before the addition of any stimulus from Trumponomics," said Mr Greg McKenna, chief market strategist at FX and CFD provider AxiTrader.

The US dollar was virtually flat against the yen, euro and pound a day after surging around 1 per cent against each.

However, it jumped almost 1 per cent against the South Korean won, 0.4 per cent against the Australian dollar and 1.3 per cent on Canada's dollar.

The Malaysian ringgit was down 0.1 per cent, as was Indonesia's rupiah.

On equity markets, Tokyo's Nikkei finished 0.9 per cent higher as exporters were lifted by the weakening yen.

The gains came despite a 17 per cent plunge in Takata following a report that two rival suitors are set to propose bankruptcy restructuring plans for the airbag maker at the centre of the biggest-ever auto safety recall.

Toshiba slumped 16 per cent after the Nikkei business daily said the conglomerate could book losses of more than 500 billion yen in its nuclear reactor business.

Sydney edged up 0.2 per cent and Seoul put on 0.1 per cent, while Singapore, Jakarta, Manila and Mumbai also posted gains.

But Hong Kong lost 0.2 per cent in the afternoon and Shanghai closed 0.4 per cent lower.

Investors are waiting for Trump's post-inauguration speech, hoping he will provide some colour to his campaign promises, although there are concerns among many Asian markets about his protectionist rhetoric.

"While the inauguration is dominating headlines, simmering on the back burner is the overriding theme of US protectionism, expressly directed at China," said Mr Stephen Innes, senior trader at OANDA.

"With so many prominent trade hawks joining the Trump administration, it all points to a massive shift in US trade policy.

"That does not paint a rosy picture for regional... exporters, nor countries like Australia, which play such a vital role in the global supply chain." - AFP

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