Yellen announced that the Fed may wind down its huge bond-buying exercise in the autumn, and then increase benchmark rates after six months, which was earlier than the market had expected.
“It is hard to ignore that Chair Yellen did not sound like the dove we expected and, in fact, sounded relatively optimistic about the timing of interest rate hikes. This is (US dollar) positive and supports our bearish euro and yen call,” said Camilla Sutton, a Toronto-based chief foreign exchange strategist at Scotia bank.
The dollar index, which compares it against a basket of other main currencies, surged to a three-week peak of 80.354. It also edged past resistance of around $1.3810 per euro to stand 0.4 percent higher at $1.3775.
The dollar had initially strengthened by more than a cent against the euro after Fed’s decision on Wednesday, before surging sharply in Europe morning trade. This helped reverse its weak performance recently after harsh winter weather hampered economic prospects.
“From this point forward, at least for the time being, you will see a firmer tone to the dollar,” said Stephen Gallo, a London-based analyst with Canadian bank BMO.
“Whether this kicks on will depend on the data showing the U.S. economy emerging nicely from the weather-related dip, but until we get the next batch of data at the start of next month, Yellen has set the tone, ” he added.
The yen earlier slumped 0.13 percent to stand at 102.48 versus the dollar, before surging 0.1 percent to 102.41 yen in the late trade in New York.
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