The dollar hit two-week highs against the euro and high-yielding currencies such as sterling on Wednesday as upbeat comments from the Federal Reserve chief reinforced expectations of higher US interest rates.
The greenback got a boost after the Fed's Alan Greenspan said on Tuesday in his semi-annual review of monetary policy that the US economic expansion had "become more broad-based" and had "produced notable gains in employment".
Greenspan also said he couldn't rule out an inflation push from prolonged monetary accommodation. The Fed raised rates in June to 1.25 percent from 46-year lows of 1.0 percent.
"The main message from the Fed was a bit more upbeat than expected. The Fed now seems to have strongly confirmed leaving rates steady is a bigger risk as it boosts inflation and creates more imbalances in the economy. This is supporting the dollar," said Kristjan Kasikov, currency strategist at Calyon.
"The Fed is saying that soft spots for the US economy are temporary and growth going forward will be stronger than the first half."
By 1130 GMT the dollar had risen as high as $1.2279, up a third of a percent on the day and above a 4-1/2 month low around $1.2460 set on Monday.
Higher-yielding currencies were particularly badly hit with sterling falling a full US cent.
"Sterling is under-performing relative to the euro and yen because it has taken up too much of the burden from the dollar's (past) weakness," said Marios Maratheftis, currency strategist at Standard Chartered.
Greenspan speaks again on Wednesday, delivering his semi-annual report on monetary policy before the House Financial Services Committee at 1400 GMT.
"He is going to say exactly the same thing so in terms of capacity for surprise there won't be much from him," Kasikov said.
Comments
Comments are closed.