Dollar, the Fed and the yen at the center of the debate

The dollar was down slightly against its major rivals on Monday, after Federal Reserve officials had expressed caution over global growth prospects, pushing traders to re-evaluate the pace of future US interest rate hikes.

The US currency has experienced strong growth this year thanks to the steady tightening of the Fed's policy, which is explained by the strength of the economy and the mounting pressure on wages. A fourth rate hike this year is expected next month and politicians have announced two more by June 2019.

Richard Clarida, the new vice president of the Fed, however commented on Friday the market expectation of a sustained tightening. Clarida warned of 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.

Comments led some traders to question whether the dollar's rally was coming to an end as yields on 10-year US benchmark bonds fell slightly.

"The market has definitely interpreted these statements as dovish, but the Fed has always been dependent on the data and, to that extent, it should not be surprising," 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 was $ 112.70 on the dollar, up slightly 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 managed to remain stable in early Asian trade, changing hands at USD 1,1411, after rising over the last four trading sessions despite weak economic fundamentals.

"The euro has dealt almost exclusively with anti-dollar flows and risk appetite, and we expect it to be the same this week because the currency seems to have overrode any weaknesses. from the PPI report of Germany or euro area MIPs, "said Kathy Lien, general manager of FX strategy at BK Asset Management. .

The pound hovered at 1.2832 USD after being the subject of strong sales last week as a result of the turbulence caused by British Prime Minister Theresa May's draft Brexit plan.

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

Since May unveiled a draft divorce agreement with the European Union, his prime minister's post has been plunged into crisis. Several ministers, including his Brexit minister, have resigned and some of his legislators are seeking to oust him.[nL8N1XT0F6]

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 the Australian dollar.