Dollar extends gains after Yellen’s comments

Reuters U.S. Federal Reserve Chair Janet Yellen testifies before the Senate Banking Committee on Capitol Hill in Washington July 15, 2014.

The dollar was higher against major rivals Wednesday, slightly extending its overnight gain following comments by the head of the Federal Reserve, but finding it unable to advance much further without fresh cues during the Asian session.

As of 04:50 GMT, the dollar rose to ¥101.74 compared with ¥101.68 late Tuesday in New York. Meanwhile, the euro fell to $1.3562 from $1.3568 after hitting a one-month low of $1.3560 in mid-afternoon trade.

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The greenback's rise during Asia session tracked its overnight gain in the wake of comments by Federal Reserve Chairwoman Janet Yellen that interest rates would climb earlier and faster than expected if U.S. data on inflation and employment continue to improve.

"If the labor market continues to improve more quickly than anticipated by the (Fed) ... then increases in the federal-funds rate target likely would occur sooner and be more rapid than currently envisioned," she told the Senate Banking Committee. The Fed has held its benchmark short-term rate near zero since late 2008.

The dollar (USDJPY)  went as high as ¥101.78 in mid-morning before turning top heavy. Market participants pointed out that selling orders are stacked up around ¥101.80-¥102.00, keeping a lid on further gains.

"U.S. interest rates are unable to rise successfully," said Kyosuke Suzuki, head of FX and money-market sales at Societe Generale. "With groundwork to allow the dollar buying not being set, it is hard to expect the situation to lean toward a stronger dollar this week."

Mr. Suzuki expects the greenback to trade in a tight range of ¥101.20-¥102.00 for the rest of the week.

Given the recently stronger correlation between the dollar-yen and U.S.-Japan interest-rate differentials, the reaction of U.S. long-term rates to economic data needs to be closely monitored, said Junya Tanase, chief FX strategist at J.P. Morgan.

The dollar could go either way against the yen over the short term, but is more likely to fall, given strong downside pressure on U.S. Treasury yields and weakness in the dollar across the board, Mr. Tanase said.

Investors may need to be more cautious about the risk of a dollar-yen fall in the case of weak U.S. economic data such as producer prices, industrial output and capacity utilization, later Wednesday, he said.

In other currency trading, the euro (EURJPY)  was at ¥137.97 from ¥137.96.

The WSJ Dollar Index (XX:BUXX)  , a measure of the dollar against a basket of major currencies, was up 0.07% at 73.07.

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