Dollar pauses as Fed officials warn of global growth and yen companies

SINGAPORE (Reuters) – The dollar eased slightly against other major currencies on Monday, after Federal Reserve officials expressed caution over global growth prospects, pushing traders to re-evaluate the pace of gains future US interest rates.

The greenback has performed well this year thanks to continued tightening of the Fed's policy on the back of a robust economy and mounting pressure on wages. A fourth rate hike this year is expected next month and politicians have announced two more by June 2019.

Remarks by Richard Clarida, the Fed's new vice-president Friday, challenged the market's expectations for steady tightening. Clarida cautioned against a slowdown in global growth, saying "it's something relevant" for the outlook for the US economy.

In another interview with Fox Business, President Robert Kaplan, chairman of the Dallas Federal Reserve, said he was witnessing a slowdown in growth in Europe and China.

These comments may suggest that the Fed is on the verge of slowing its monetary tightening and has led some traders to question whether the dollar's rally is coming to an end, as yields on 10-year US benchmark bonds have fallen slightly .

Fed Chairman in New York, John Williams, will speak on Monday and traders will wait to see if he takes up the same theme as his colleagues.

"The market has definitely interpreted these statements as dovish. However, the Fed has always been dependent on the data and, to that extent, it should not be a surprise, "said Michael McCarthy, chief markets strategist at CMC Markets.

The dollar index, an indicator of its value against six major competitors, edged slightly to 96.45, recording a 0.5% drop on Friday. The dollar index had hit a 16-year high of 97.69 on Nov. 12.

The yen reached 112.68 on the dollar, slightly higher that day. The dollar lost 0.9% against the yen last week, as traders rushed into the Japanese currency hedge because of worries over trade tensions between the US and China and political risks in Europe around Brexit and the Italian budget.

The euro plunged 0.1% in Asian trade from US $ 1,1403 to US $ 1,1403, after rising in the last four trading sessions despite weaker economic fundamentals.

The single currency has gained 2.7% against the British pound since November 13, with the uncertainty surrounding a good Brexit deal remaining at the forefront.

"The euro is almost exclusively traded on anti-dollar flows and risk appetite, and we expect that will be the same this week because the currency seems to have overcame any weakness in the PPI report of Germany or the eurozone, "said Kathy Lien, managing director of BK Asset Management's foreign exchange strategy. .

The pound sterling traded at 1.2832 USD after strong sales last week as a result of the turmoil sparked by British Prime Minister Theresa May's draft Brexit plan.

The currency should remain under pressure until the market gets more details on the Brexit deal, said McCarthy of CMC Markets.

Since May unveiled a draft agreement on divorce with the European Union, her term has been plunged into a crisis. Several ministers, including his Brexit minister, have resigned and some of his legislators are seeking to oust him.

Pro-EU and pro-Brexit lawmakers being unhappy with the draft agreement, it is not clear that it will be able to win Parliament's support, increasing the risk that Britain will leave the EU without agreement.

The Australian dollar fell 0.2% to 0.7317 USD as trade tensions between the United States and China showed no signs of a decline.

China is Australia's largest trading partner, and any negative sentiment affecting the world's second-largest economy tends to undermine Australia.