* Dollar knocked off two-week highs vs currency basket
* Yellen says Fed's extraordinary commitment still needed
for some time
* Euro bounces back even after soft CPI adds pressure on ECB
* China PMI data, RBA rate decision in focus
By Ian Chua
SYDNEY, April 1 The yen stayed on the backfoot
early on Tuesday, while the dollar dipped slightly after the
head of the Federal Reserve took pains to defend the central
bank's ultra-loose policy settings.
The dollar index stood at 80.100, having retreated
from a near two-week high of 80.296. Against the yen though, the
greenback traded at 103.23, holding on to most of the
gains that sent it to a three-week high of 103.44.
In a setback for dollar bulls, Fed chair Janet Yellen said
"considerable" slack still existed in the job market and that
further monetary stimulus could be effective.
"I think this extraordinary commitment is still needed and
will be for some time, and I believe that view is widely shared
by my fellow policymakers," Yellen said in her first public
address since taking the helm of the world's most powerful
central bank two months ago.
Her latest comments somewhat countered those she made last
month, when she shocked markets by suggesting the possibility of
interest rate hikes from early next year.
"The remarks appeared to be an effort to reverse some of the
impression left by her "six months" reference at the March FOMC
press conference," analysts at BNP Paribas wrote in a note to
Yet Fed fund futures <0#FF:> rose only modestly, suggesting
markets remained wary the U.S. central bank could still tighten
policy early in 2015.
The pullback in the dollar helped the euro reverse losses.
The common currency last traded at $1.3773, having
rebounded from $1.3721.
Investors had initially sold the euro after data showed euro
zone inflation slowed further last month, putting more pressure
on the European Central Bank (ECB) to act against the threat of
Annual consumer inflation in the 18 countries sharing the
euro was 0.5 percent in March, in the ECB's "danger zone" of
below 1 percent for a sixth month.
The euro also held firm against the yen, rising to 142.22
after peaking at a near three-week high of 142.62.
Improving risk sentiment, partly on hopes of fresh stimulus
from China, has weighed on demand for the Japanese currency of
Indeed, any signs of further weakness in a survey of Chinese
manufacturing activity due around 0100 GMT will likely add to
the case for more action from Beijing.
In particular, the yen has fallen sharply against
higher-yielding commodity currencies. The New Zealand dollar
reached a fresh 6-1/2 year high of 89.59, having
rallied 3.4 percent in the first quarter.
The Australian dollar touched a 10-month high of 95.73 yen
and was last at 95.64. It has risen 1.8 percent in
the first quarter.
The kiwi has been in demand as the Reserve Bank of New
Zealand became the first central bank of a developed country to
start normalising policy this year.
While the Reserve Bank of Australia (RBA) may be a long way
from following the RBNZ, it has stepped back from its long-run
campaign of talking down the currency.
Recent data have also suggested the economy is slowly
transitioning away from mining-led growth, meaning the RBA has
no reason to break its pledge to keep interest rates steady for
The RBA board meets on Tuesday and will announce its
decision at 0330 GMT. All 20 economists polled by Reuters see
the central bank keeping the cash rate at 2.5 percent.
(Editing by Richard Pullin)