By Tatsuo Ito

The dollar fell short of breaking through the Yen104 mark on Friday amid growing expectations that U.S. Federal Reserve Chair Janet Yellen will not go beyond what she has previously said about interest rates in her speech at Jackson Hole, Wyo., later in the global day.

The dollar was at Yen103.74 after earlier rising within striking distance of Yen104 at Yen103.96. It was at Yen103.81 late Thursday in New York. The euro was at $1.3287 from $1.3281.

Currency traders have been keeping a close eye on U.S. Treasury yields to gauge the dollar's direction. On Thursday, the 10-year yield (10_YEAR) dipped despite relatively solid U.S. economic data.

Initial claims for unemployment benefit fell by 14,000 to a seasonally adjusted 298,000 in the week ended Aug. 16. That was slightly lower than a forecast of 302,000 new claims. Sales of existing homes increased 2.4% from June.

But the data didn't prompt a rise in U.S. bond yields "giving rise to the view that Ms. Yellen is not expected to say anything too hawkish," said Shinji Kureda, head of FX trading at Sumitomo Mitsui Banking says.

Takahiro Iizuka, trader at Mizuho Trust and Banking said the market has already priced in the likelihood that Yellen won't go beyond what was said at the Fed policy meeting in July. Minutes of the meeting, released Wednesday, offered a hawkish tone on the Fed's future monetary policy.

But with little expected to come from the speech, any hawkish comments will likely have an immediate impact on yields.

"If the tone of her comments is unexpectedly strong, that could push the U.S. 10-year Treasury yield up to 2.500% from the current 2.409%, boosting thedollar toward Yen105.00," Iizuka said.

He added that caution was therefore still needed, especially after Federal Reserve Bank of San Francisco President John Williams said he expected the first central bank increase in short-term interest rates to come in little more than a year.

Williams has long held views close to those of most of the members of the monetary-policy setting Federal Open Market Committee. He is also seen as an ally of Yellen.

Mizuho's Iizuka added that feeble summer consumption in Japan, due in part to changeable weather and natural disasters in western Japan, could stoke expectations of additional easing by the Bank of Japan. Further BOJ action would support the dollar against the yen.

Data released Thursday showed that sales of 60 supermarket chains nationwide fell 2.1% in July from a year ago.

The WSJ Dollar Index , a measure of the dollar against a basket of major currencies, was down 0.07% at 74.39.

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(END) Dow Jones Newswires

August 22, 2014 02:56 ET (06:56 GMT)

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