The dollar extended gains as comments by Federal Reserve Chair Janet Yellen boosted demand for the currency after a better-than-forecast inflation report.
The U.S. currency rose versus the euro as Yellen said she still expects to raise interest rates this year during a speech in Providence, Rhode Island. The greenback erased earlier losses as a report showed core inflation accelerated at the fastest pace in more than two years, moving a step closer to meeting a Fed condition for higher borrowing costs.
The inflation report “is certainly going to be helpful in the short term and, with respect to Yellen, the dollar is holding its gains,” Mike Moran, a senior strategist in New York at Standard Chartered Plc, said by phone. “It certainly feels more of a balanced market, positioning-wise, and I think we are looking at potentially a bit more upside for the dollar here.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, rose 0.8 percent to 1,179.86 as of 5 p.m. in New York, rising 2.6 percent on the week for its first weekly gain since the period ending April 10.
The dollar added 0.9 percent to $1.1013 per euro, touching $1.1002, its strongest since April 29. The currency rose 0.4 percent to 121.54 yen.
Raising rates this year will be “appropriate,” provided the economy meets her forecasts, Yellen said during the speech. The pace of normalization is then likely to be gradual, she said.
The U.S. currency is poised to advance versus all of its 16 major peers this week after a Labor Department release showed the cost of living, excluding food and fuel, climbed 0.3 percent last month, exceeding the 0.2 percent median estimate of 84 economists surveyed by Bloomberg. Prices including food and fuel rose 0.1 percent, in line with expectations.
“It’s a confirmation that inflation isn’t dead and that the Fed needs to be mindful of that,” said Kate Warne, a St. Louis-based investment strategist at Edward D. Jones & Co., which manages about $870 billion. “The dollar’s going to respond to any indication that the Fed might hike this year or hike earlier.”
Faster inflation helped counter reports on manufacturing and existing home sales that missed forecasts this week, before a release on durable goods data due Tuesday. Markets in Hong Kong, the U.K. and U.S. are closed Monday for holidays.
The Fed is scrutinizing incoming data as it looks to ensure the U.S. economy is resilient enough to withstand its first interest-rate increase since 2006.
“We’re seeing perhaps some moderate rise in underlying inflation, and that contrasts with some of the other disappointing economic data we’ve seen over the last few weeks,” said Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington. “This number would argue for the Fed to probably move in September and that’s ultimately dollar-positive.”