FOREX-Dollar hits two-week high in wake of rates talk

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, May 5 (Reuters) - The dollar hit its highest in over
two weeks on Wednesday, extending a rally as chatter about the
possibility of higher U.S. interest rates and a sell-off in tech
stocks soured risk sentiment to the benefit of the safe-haven
currency.
The dollar's bounce on Tuesday put pressure on the euro,
which dropped once again below the $1.20 mark EUR=EBS on
Wednesday, hitting its lowest against the buck in over two
weeks.
The dollar index, which measures the greenback against a
basket of peer currencies, rose as high as 91.436, its highest
since April 19.
The bounce was partly sparked by comments from U.S. Treasury
Secretary Janet Yellen that rate hikes may be needed to stop the
economy overheating. Yellen later downplayed their importance, but even the
slightest mention of U.S. tightening has an outsized impact in
markets that have become so dependent on monetary stimulus.
The effect was apparent in large-cap tech stocks, which
suffered hefty losses overnight, dragging the Nasdaq down 1.88%.
"The markets may be tempted to do some ‘yellen and
screaming' after last night's episode, following the apparent
hawkish comments by the U.S. Treasury secretary and the
subsequent backtracking," said Valentin Marinov, head of G10 FX
research at Credit Agricole.
"All that said, the comments do highlight that there is now
an ongoing debate among the U.S. officials about the need to
curb the Fed's ultra-aggressive monetary stimulus."
So far, Federal Reserve Chair Jerome Powell has argued the
labour market is still far short of where it needs to be to
start talking of tapering asset buying.
That position could be tested on Friday should the April
payrolls report be as strong as some are suggesting. The median
forecast is for a rise of 978,000, but estimates stretch as high
as 2.1 million.
Three more Fed officials are speaking later on Wednesday
providing the opportunity for further market-moving comments.
On the data calendar, traders will look to the ADP payroll
numbers that precedes Friday's jobs numbers, and the ISM
services index for April, both due later in the U.S. trading
session.
"Two strong releases may cast further doubt on the ability
of the Fed to hang on to its dovishness and could help the
dollar stay supported today," said Francesco Pesole, G10 FX
strategist at ING in a note.
"Low-yielders may be the main underperformer if the dollar
inches higher, while activity currencies may still benefit from
the supported reflationary story and some evidence of
vaccination rollout gathering more pace in key regions of the
world."
Trading was limited in Asia with Japan and China on holiday,
but the New Zealand dollar blipped over half a percent higher to
$0.7192 NZD=D3 on the back of stronger than expected jobs
data. The Australian dollar also ticked higher, up 0.3% to
$0.7736. The U.S. dollar last traded flat to the yen at 109.29 JPY=
and again needs to break resistance at 109.61 to encourage more
speculative bids.
Sterling traded 0.24% higher at $1.3918 a day ahead of the
Bank of England meeting, where it is expected by some to
announce a tapering of its bond-buying programme. GBP=D3
GBP/

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