1. Forex: US dollar rallies as Janet Yellen, PPI bolster rate hike expectations

Forex: US dollar rallies as Janet Yellen, PPI bolster rate hike expectations

The US dollar rose on Wednesday after Federal Reserve Chair Janet Yellen reinforced market expectations for a U.S. interest rate hike, possibly as soon as September.

By: | Published: July 15, 2015 9:28 PM

The US dollar rose on Wednesday after Federal Reserve Chair Janet Yellen reinforced market expectations for a U.S. interest rate hike, possibly as soon as September.

The top U.S. central banker said in testimony prepared for Congress that the Fed remains poised to raise interest rates this year, with labor markets expected to steadily improve and turmoil abroad unlikely to knock the U.S. economy off track.

The dollar also got a lift from Labor Department data showing that its producer price index for final demand increased 0.4 percent last month after rising 0.5 percent in May. It was the second straight month of increases in producer prices and is seen as supportive of a Fed rate hike.

The greenback, which had been trading flat, jumped after the release of both Yellen’s comments and the wholesale inflation figures. It was last up 0.40 percent against both the euro at $1.0965 percent and the yen at 123.81 yen.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate,” Yellen said.

Her written statement, which was to be followed by a House committee hearing that began at 10 a.m. ET (1400 GMT), largely tracked her recent public comments, as well as the most recent statement by the Fed’s policy-setting committee.

“There were no major surprises but to hear it again at this point does solidify expectations for a rate hike, most likely in September,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

“Additionally the higher-than-expected PPI, both the headline and the core, added to dollar’s improving tone.”

The dollar was down 0.25 percent against the British pound, which has been rising as Bank of England officials speak of a likely rise in UK interest rates.

Sterling was last at $1.5590 after rising to its highest this month against the dollar, euro and yen.

Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo-Mitsubishi UFJ, said that a fading of the risk of an immediate Greek exit from the euro zone was likely to see interest rate policy in the spotlight for currency traders in the weeks ahead.

The dollar index was up 0.55 percent.

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