The U.S. dollar rose to the highest level in more than three weeks versus a basket of peers as Federal Reserve Chair Janet Yellen told lawmakers asset valuations in general aren’t out of line with historical norms.
The dollar reached the strongest in a month versus the euro as wholesale prices in the U.S. rose more than forecast and the Fed saw modest to moderate growth in June. New Zealand’s dollar slumped the most in seven weeks after inflation accelerated slower than expected and a gauge of dairy prices dropped to its lowest since 2012. South Korea’s won slid to the weakest since April.
“Yellen’s job is to put a smiling face on whatever the news is,” said Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York. “Her job is to inspire confidence and at the same time show concern on areas of the economy that she thinks are irrationally exuberant. That’s what she’s been doing in these testimonies and she’s doing a good job of it.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, climbed 0.1 percent to 1,009.86 as of 5 p.m. in New York, and reached 1,010.67, the highest level since June 20.
The greenback gained 0.3 percent to $1.3525 per euro after reaching $1.3521, the strongest since June 16. The euro slid 0.3 percent to 137.51 yen. The U.S currency was little changed at 101.67 yen after touching 101.79, the most since July 9.
New Zealand’s dollar, known as the kiwi for the image of the flightless bird on its NZ$1 coin, was the biggest loser versus the dollar, falling versus all 31 of its major peers amid bets the central bank will delay raising interest rates.
Swap traders predict policy makers will boost the cash rate by 69 basis points in the next 12 months, less than the 84 basis points indicated yesterday, according to a Credit Suisse Group AG index. The central bank has raised its benchmark rate by 75 basis points, or 0.75 percentage point, this year to 3.25 percent, the highest among major developed nations.
Consumer prices rose 1.6 percent in the second quarter from a year earlier, less than the 1.8 percent increase predicted in a Bloomberg survey. The GlobalDairyTrade Price Index fell 8.9 percent in a two-weekly auction yesterday.
“It’s a shake back into reality as these dairy prices come down and we’ve seen the CPI come down, too,” said Jane Foley, senior currency strategist at Rabobank International in London. “There are still too many rate hikes priced in. That’s what’s undermining the New Zealand dollar.”
New Zealand’s currency tumbled 0.6 percent to 87.12 U.S. cents after sliding as much as 0.9 percent, the biggest decline since May 28. The currency’s five-day losing streak is the longest since the period ended Dec. 27.
The won slid for a second day as South Korea’s new finance minister called for aggressive action to revive economic growth, fueling speculation he will lower interest rates.
The currency fell 0.5 percent to 1,031.98 per dollar after sliding to 1,035.99, the weakest since April 28.
Yellen testified before the House Financial Services Committee today that she’s not seeing “alarming warning signals” in markets.
“My general assessment at this point is that threats to financial stability are at a moderate level and not a very high level,” she said. While some asset values “may be on the high side and there may be some pockets where we see valuations becoming stretched,” in general “price equity ratios and other measures are not outside of historical norms.”
In her semi-annual testimony to the Senate Banking Committee yesterday, Yellen told lawmakers the central bank must press on with monetary stimulus as “significant slack” remains in labor markets and inflation is still below the Fed’s goal.
Policy makers have kept the benchmark federal funds rate in a range of zero to 0.25 percent since December 2008. Futures prices show a 75 percent chance the central bank will raise the rate by September 2015.
The dollar gained as the U.S. producer price index increased 0.4 percent in June, after a 0.2 percent drop in May, the Labor Department reported today. The median estimate in a Bloomberg survey of 69 economists called for an advance of 0.2 percent. Fuel costs climbed 2.1 percent, the biggest gain since February 2013.
The Fed said today in its Beige Book business survey that economic growth was modest to moderate as all 12 of its districts reported stronger consumer spending and expanded manufacturing, and a third saw “robust to very strong” auto sales.
Unemployment fell to an almost six-year low of 6.1 percent last month, close to the level most Fed officials predicted for the end of the year. Payrolls surged by 288,000 workers, boosting the average monthly advance so far this year to almost 231,000.
“If the labor market improves as it has been, there’s the potential for an earlier rate hike,” said Kiran Kowshik, a foreign-exchange analyst at BNP Paribas SA in London. “The market’s playing off that.”
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