* Dollar index near a 7-week high on rate hike expectation
* Dollar hits 2-week high vs yen
* Fed's Brainard: "appropriate soon" to raise rates
* Sterling sinks to 6-week low on Brexit worries
By Yuzuha Oka
TOKYO, March 2 The dollar hovered near a
seven-week high on Thursday on increasing signs given by Federal
Reserve officials that the U.S. central bank is seriously
considering raising interest rates this month.
Federal Reserve Governor Lael Brainard said late on
Wednesday an improving global economy and a solid U.S. recovery
mean it will be "appropriate soon" for the Fed to raise
The dollar index, which measures the greenback against a
basket of six major currencies, was slightly higher at 101.91
. The index climbed to 101.97 on Wednesday, its highest
since Jan. 11.
On Tuesday, two influential Fed policymakers, William Dudley
and John Williams, encouraged dollar bulls with comments that
suggested rate-setters are worried about waiting too long in the
face of pending economic stimulus from Washington.
"The Fed is likely to raise interest rates this month unless
the U.S. jobs data due next week is bad," said Yukio Ishizuki,
FX strategist at Daiwa Securities in Tokyo.
Futures traders are now pricing in a 66 percent chance of a
Fed hike in March, up from 35 percent on Wednesday, according to
the CME Group's FedWatch Tool.
U.S. President Donald Trump's long-awaited speech on Tuesday
failed to give specific details on his economic plans, but
outlined broad tax cuts and a $1 trillion public-private
initiative to rebuild degraded roads and bridges.
"Investors liked that Trump was behaving well during his
speech although it lacked specifics in policies," said Daiwa's
Against its Japanese counterpart, the dollar was up 0.3
percent at 114.04 yen. The greenback reached a two-week
high of 114.16 yen earlier in the day.
A widening of U.S.-Japan interest rate differentials helped
the dollar, as U.S. Treasury yields jumped on an increased
prospect for a March rate hike.
The U.S. two-year yield hovered near a more than seven-year
high of 1.308 percent touched on Wednesday. The
benchmark 10-year Treasury yield was also close to a two-week
high, last standing at 2.461 percent.
However, some analysts warned that the dollar could weaken
despite the widening interest rate differentials should stocks
"If the Fed goes ahead with a faster pace of rate hikes and
shrinks its balance sheet, it will weigh on stock prices," said
Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.
"Lower share prices and wider yield differentials would
result in a weaker dollar, just like in May 2013 when Fed's
Bernanke signalled tapering," said Uchida.
Investors are closely watching speeches from Fed Chair Janet
Yellen and Vice Chair Stanley Fischer on Friday for further
The U.S. non-farm payrolls next Friday is another crucial
factor to decide on the possibility of a March rate hike.
Sterling and the Canadian dollar weakened against the
greenback to their lowest levels since Jan. 20.
Canada's central bank held rates steady on Wednesday,
striking a cautious tone on the "significant uncertainties"
facing the economy.
The greenback hovered near a six-week high versus the
loonie, last standing at 1.3356 Canadian dollar.
Sterling sank to a six-week low of $1.2261 as
disappointing economic data on Wednesday added to political
nerves that have begun to weigh on the currency again after last
year's Brexit vote.
The euro was down 0.2 percent at $1.0529. The common
currency dipped to a one-week low of $1.0514 against the dollar
The Australian dollar sagged on weaker-than-expected trade
data, dipping 0.3 percent to $0.7654.
Australia's trade surplus shrank unexpectedly in January,
though the quarterly current account might still edge into the
black for the first time since the mid-1970s.
(Editing by Shri Navaratnam and Jacqueline Wong)