Dollar Strengthens as Yellen May Signal Higher Rates

The dollar rose against most of its major peers before testimony from Federal Reserve Chair Janet Yellen that may provide details on a path to higher U.S. interest rates.

The Bloomberg Dollar Spot Index climbed after Richmond Fed President Jeffrey Lacker was cited by Market News International as saying the central bank may raise rates in June, even if it doesn’t first remove a reference to being “patient” about increases from its policy statements. The U.S. currency has strengthened since the Fed published minutes of its January meeting on Feb. 18 as traders disregarded their assertion that the central bank is willing to keep borrowing costs low for longer.

“Yellen’s the focus,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said in a phone interview. The market will monitor “how she sees the risk of lower inflation with the strong dollar on one hand and a strong labor market on the other,” he said.

Bloomberg’s gauge of the dollar versus its 10 major counterparts rose 0.2 percent to 1,171.60 as of 8:31 a.m. Tuesday in New York. The index touched 1,175.99 on Feb. 11, the highest level since Bloomberg began gathering the data in 2004.

Market Prices

The dollar climbed 0.6 percent to 119.54 yen and was little changed at $1.1328 per euro. The single currency remained steady after the European Commission said it had reviewed Greece’s reform proposals and found them “sufficiently comprehensive” to work toward a conclusion of the country’s current bailout program.

Yellen is scheduled to testify in the Senate on Tuesday and in the House of Representatives the following day. She’ll probably provide an update on the central bank’s view after policy makers signaled at their Jan. 27-28 meeting that they’re willing to keep interest rates lower for longer given risks to the economy.

The January policy meeting was held before a report on Feb. 6 that showed U.S. payrolls rose more in January than economists forecast, capping the strongest three months of jobs growth in 17 years and delivering the biggest wage increase since 2008.

“The dollar is likely to remain supported beyond Yellen’s speech,” said Ian Stannard, European head of currency strategy at Morgan Stanley in London. “The fact that the dollar has remained strong despite dovish minutes suggests that the dollar is being driven by other factors such as growth differentials.”

Stannard said the dollar is likely to strengthen more should traders interpret Yellen’s comments as hawkish.

The dollar was the best performer among 10 developed-nation peers in the past 12 months, gaining 16.5 percent against the basket of currencies, according to Bloomberg Correlation-Weighted Indexes. The euro dropped 6 percent and the yen declined 1.9 percent.

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