Dollar defensive as Yellen sticks to script, yen centre stage

By Ian Chua

SYDNEY (Reuters) - The dollar was broadly lower early on Thursday after comments from Federal Reserve Chair Janet Yellen gave investors no reason to change their minds that the next rate hike will be a long time coming.

Sticking largely to the script, Yellen made clear the central bank remained on a path of 'gradual' policy tightening. Yet she also highlighted growing risks facing the economy.

The end effect was probably what she wanted; no material shift in the Fed fund futures <0#FF:>. The two-year Treasury yield reversed an early rise to close a touch lower.

That gave currency investors the green light to continue the current trading theme; buy the safe-haven yen. As a result, the dollar came within a whisker of 113.00 yen , reaching a low not see since November 2014. It was last at 113.49.

The euro also weakened against its Japanese peer, sliding to a near three-week low of 127.74 yen . It has since edged back to 128.00.

Against the greenback, the common currency held near $1.1300 and stayed within reach of a three-month high of $1.13385 set earlier in the week.

"While the Fed is in a waiting mode to see how those risks play out, we don't see Fed hikes being priced in again any time soon," analysts at BNP Paribas wrote in a note to clients.

"In this environment USD is likely to continue to struggle against the G10 funders JPY and EUR, although we would also be wary of calling for significant dollar weakness against these currencies as we think the BOJ and ECB will remain sensitive to FX appreciation."

The softer greenback also saw commodity currencies firm slightly. The Australian dollar flirted with 71 U.S. cents , though it remains in the middle of a 68-72 cent range with no break out imminent.

Trading in Asia is shaping up to be subdued given a dearth of major economic data out of the region and with both Japan and China shut for public holidays.

(Reporting by Ian Chua; Editing by Eric Meijer)