The dollar index was up almost 2 percent in a week that saw Federal Reserve Chair Janet Yellen reiterate that us interest rates will probably be lifted later in the year.
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The dollar held at two-month highs against a basket of major currencies early on Friday, having extended gains as the market shifted its focus to an eventual hike in USA interest rates.
The dollar rose on Wednesday after Federal Reserve Chair Janet Yellen reinforced market expectations for a US interest rate hike, possibly as soon as September.
While a Fed “lift-off” raises domestic borrowing costs, the expected slow pace of rate normalisation shouldn’t cut much into corporate profits, analysts said.
The interest rate move has been put off several times this year because of a range of different obstacles, such as the country’s economic contraction in the first quarter, a slowdown in China’s economy and Greece’s default on debt to the global Monetary Fund.
Responding to questions, she said the Fed could decide to raise rates at any meeting, not just those that are typically followed by a previously scheduled news conference.
She was optimistic that inflation would continue to inch upward. Committee Chairman Jeb Hensarling, R-Texas, said a simple rule would make the Fed more predictable and understandable and help an economy “mired in lackluster, halting economic growth”.
Republican Senator Mike Crapo reminded Yellen on Thursday that Fed governor and top banking regulator Daniel Tarullo has told the committee he supports raising the threshold above $50 billion.
On monetary policy, Yellen said that she did not believe the Fed is overly influenced by concerns about financial markets.
Yellen noted a number of areas that had improved.
Yellen said Wednesday that the Fed already ranked “among the most transparent central banks”, and cautioned against opening new windows. Unemployment fell in June to 5.3 per cent, its lowest in more than seven years. He accuses Yellen and the central bank of suppressing documents that have been subpoenaed for a current congressional leak investigation. It will depend on its assessment of realized and expected improvement in the labor market (maximum employment) and 2% inflation.
Yellen’s testimony on the economy was similar to a speech she gave on July 10. For example, too many people are not searching for a job but would likely do so if the labor market was stronger. Benchmark U.S. 10-year Treasuries yields edged up 1 basis point at 2.412 per cent. Those affect saving, investment, exports and other components of the economy.
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Lawmakers in both the House and Senate have introduced legislation to rein in the Fed’s independence, measures that the central bank have warned could damage the independence the Fed needs to maintain its credibility with financial markets.
