The dollar gained against most of its 16 major peers as Federal Reserve Chair Janet Yellen told lawmakers rates may rise sooner than markets expect should the labor market continue to improve faster than anticipated.
The U.S. currency strengthened for a second day against the yen after retail sales showed a broad-based gain in June and a New York Fed gauge of manufacturing climbed in July. The pound rose to highest level in almost six years versus the greenback as U.K. inflation accelerated more than economists forecast. The shekel fell from an almost three-year high after Israel’s military went back on the offensive as Gaza militants defied an Egyptian cease-fire proposal. South Korea’s won tumbled.
“There’s a very good chance the labor market continues to improve more quickly than they anticipated,” said Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG in New York. “It provides the basis for tightening to happen sooner and more rapidly than envisioned.”
The dollar rose 0.1 percent to 101.68 yen at 5 p.m. in New York after climbing 0.2 percent yesterday, the most since July 3. The U.S. currency rose 0.4 percent to $1.3568 per euro after touching $1.3562, the strongest since June 18. The yen added 0.2 percent to 137.97 per euro.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, gained 0.2 percent to 1,008.96 after reaching 1,009.47, the highest since June 25.
The pound strengthened 0.4 percent versus the dollar, the most of the greenback’s 31 major peers, after the Office for National Statistics in London said U.K. consumer prices rose 1.9 percent in June, up from 1.5 percent in May. The median forecast of economists in a Bloomberg News survey was 1.6 percent.
Sterling touched $1.7192, the highest since October 2008, and advanced to 79.11 pence per euro, the strongest since Sept. 6, 2012.
The shekel was the second-best performer versus the U.S. currency even as Israel renewed its air raids on the Gaza Strip after dozens of rockets were fired at Israel. Hamas, the militant movement that controls Gaza, said it wasn’t consulted on the Egyptian plan, and its military wing rejected it.
The currency pared gains to 3.4116 per dollar, up 0.3 percent, after earlier climbing to 3.4007, the strongest since July 27, 2011.
The won slid the most against the dollar and dropped versus all of its 16 major counterparts. South Korea’s currency fell 0.9 percent to 1,027.38 per dollar after touching 1,028.47, the weakest level since May 15.
“A high degree of monetary policy accommodation remains appropriate,” Yellen said today in semi-annual testimony to the Senate Banking Committee. “If the labor market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned.”
Yellen cited labor-market weaknesses even after an unexpectedly fast decline in unemployment put pressure on Fed officials to consider accelerating their timetable for an interest-rate increase. Yellen said that rates are likely to stay low for a “considerable period” after bond purchases end, which she said could happen following the Fed’s October meeting.
Futures prices show a 75 percent chance the central bank will raise its key rate by September 2015.
The Fed chief testifies before the House Financial Services Committee tomorrow.
“Coming into the meeting, I would have been of the expectation that risk was on the downside for the dollar,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “I would really signal it to an equity selloff at the moment as to why to dollar is getting some traction.”
The Standard & Poor’s 500 Index of stocks dropped 0.2 percent. Valuations of smaller companies in the social media and biotechnology industries seem “substantially stretched” despite a decline in their share prices earlier this year, Yellen said.
Yellen’s speech was “absolutely dovish at the outset, and the reflection seems to be on that sentence about overstretched valuations,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “She seems to be tempering expectations somewhat and we very quickly turned to risk-off, which seems to be suiting the dollar.”
The U.S. currency rose earlier as American retail purchases increased 0.2 percent after a 0.5 percent advance in May that was larger than previously reported, Commerce Department figures showed today in Washington. The reading fell short of the 0.6 percent increase projected by the median estimate of 83 economists surveyed by Bloomberg.
The New York Fed Empire State Manufacturing index increased to 25.60 in July, from 19.28 the prior month, and versus a forecast of 17.
The dollar has climbed 0.7 percent in the past three months versus nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound was the biggest gainer, adding 3.4 percent, while the yen rose 0.9 percent. Norway’s krone paced decliners, falling 4 percent, and the euro dropped 1.3 percent.