Dollar Emerges Champion With Yellen Cementing Higher-Rates Path

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The dollar recorded its best week in two months after Federal Reserve Chair Janet Yellen reaffirmed she expected the central bank to raise interest rates this year for the first time in almost a decade.

The Bloomberg Dollar Spot Index climbed to a four-month high after a report showed annualized consumer prices rose for the first time in six months in June. The greenback, which was the best performer among a group of 10 developed-nation currencies in the past month, gained this week as investors shifted focus to the outlook for U.S. rates after concern over Greece and China receded.

“With inflation stable, the Fed will be more comfortable hiking rates later this year as long as the labor market continues to improve,” Ian Gordon, a foreign-exchange strategist at Bank of America Corp. in New York, said by e-mail. This should “support the U.S. dollar as the market refocuses on relative policy expectations, as near-term Greece risks have subsided.”

Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,208.00 as of 4 p.m. in New York, the highest since March 19. The gauge climbed 1.6 percent this week, the biggest gain since May 22.

The U.S. currency rose 0.4 percent to $1.0830 against the euro, the highest since April 23, and fell 0.1 percent to 124.09 yen.

‘Upside Scope’

“I’m a dollar bull with one hand tied behind my back,” Joe Manimbo, an analyst at Western Union Business Solutions, a unit of Western Union Co., said in an interview in Washington. “It’s still an uneven economy. There’s upside scope for the dollar with a slower speed.”

The U.S. consumer price index climbed 0.3 percent in June after rising 0.4 percent in May, a Labor Department report showed Friday in Washington. That matched the median forecast of 81 economists surveyed by Bloomberg. Costs over the past 12 months increased for the first time this year.

U.S. housing starts rose 9.8 percent to a 1.17 million annualized rate from a revised 1.07 million in May that was stronger than previously estimated, figures from the Commerce Department showed Friday in Washington.

Yellen View

Yellen told lawmakers on Thursday that waiting too long to raise interest rates holds risks for the U.S. economy, as does tightening too quickly. She said during two days of testimony before Congress that she believes the central bank can raise interest rates in 2015.

“There is desire to play interest-rate differentials, but not as aggressively,” said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. “We are moving back to the dollar is king.”

The euro fell to a three-month low against the dollar after European Central Bank President Mario Draghi on Thursday reiterated his commitment to carrying out a 1.1-trillion-euro stimulus plan to its intended end in September 2016. The ECB kept its refinancing rate at a record-low 0.05 percent and the deposit rate at minus 0.2 percent.

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