NEW YORK (Reuters) - The dollar rose to five-week highs on Wednesday, bolstered by an upbeat assessment of the U.S. economy from the Federal Reserve’s new chairman, which raised expectations the central bank could aggressively increase interest rates over the next two years.
The greenback in February posted its best monthly performance since November 2016.
Also helping the dollar was a euro that fell to six-week lows after euro zone inflation slowed to a 14-month trough, underlining the European Central Bank’s caution in removing the region’s stimulus.
The dollar also rose to three-week highs against the Swiss franc CHF=, a two-week peak versus sterling GBP=, and a two-month high against the Canadian dollar CAD=.
Fed Chairman Jerome Powell struck an optimistic tone about the U.S. economy on Tuesday, fueling views the Fed would raise rates four times this year rather than three. His comments boosted U.S. Treasury yields, pressured stocks, and lifted the dollar.
Treasury yields, however, retreated on Wednesday.
On Thursday, the Fed chief will deliver more testimony in front of the Senate Banking Committee. Powell is expected to deliver another hawkish statement to the Senate body.
Mark McCormick, North American head of FX strategy at TD Securities, believes the rally in the dollar against the major currencies is largely about positioning, which should limit the sustainability of the greenback’s rebound.
More importantly, he said the “dollar is running cheap to current (Treasury) spreads, so it only needs to play catch-up to the recent moves to get some additional support.”
Slightly disappointing U.S. data on Wednesday - a slight downgrade in gross domestic product growth for the fourth quarter and a weaker-than-forecast report on the U.S. Midwest manufacturing sector - failed to dent the dollar’s rally.
In late trading, the dollar index rose 0.3 percent to 90.657 .DXY, after earlier notching a five-week peak.
Meanwhile, the euro has stumbled after a strong start to the year in which investors speculated that ECB could withdraw stimulus. The euro fell to a six-week low and was last down 0.3 percent at $1.2196 EUR=.
Political developments are also making euro investors cautious. Italians are preparing to vote in a national election on Sunday, while the leading political parties in Germany decide on a coalition deal that would secure Angela Merkel a fourth term as chancellor.
Against the yen, however, the dollar fell 0.6 percent to 106.70 yen JPY=. The yen rose after the Bank of Japan on Wednesday trimmed the amount of super-long Japanese government bonds it offered to buy at its regular debt-buying operation.
Currency bid prices at 1525 EST (2025 GMT):
Description RIC Last U.S. Pct YTD High Bid Low Bid
ClosePrevi Change PctChang
Euro/Dollar EUR= $1.2196 $1.2231 -0.29 +1.67 +1.2241 +1.2189
Dollar/Yen JPY= 106.6100 107.3100 -0.65 -5.38 +107.5200 +106.5700
Euro/Yen EURJPY= 130.04 131.29 -0.95 -3.80 +131.5100 +130.0500
Dollar/Swiss CHF= 0.9442 0.9388 +0.58 -3.09 +0.9457 +0.9388
Sterling/Dollar GBP= 1.3765 1.3907 -1.02 +0.00 +1.3915 +1.3758
Dollar/Canadian CAD= 1.2839 1.2774 +0.51 +2.08 +1.2841 +1.2761
Australian/Doll AUD= 0.7769 0.7789 -0.26 -0.41 +0.7819 +0.7769
Euro/Swiss EURCHF= 1.1517 1.1485 +0.28 -1.47 +1.1531 +1.1486
Euro/Sterling EURGBP= 0.8859 0.8792 +0.76 -0.27 +0.8866 +0.8779
NZ NZD= 0.7209 0.7234 -0.35 +1.74 +0.7242 +0.7208
Dollar/Norway NOK= 7.8979 7.8663 +0.40 -3.77 +7.9121 +7.8589
Euro/Norway <EURNOK= 9.6342 9.6276 +0.07 -2.18 +9.6564 +9.6014
Dollar/Sweden SEK= 8.2856 8.2248 +0.47 +1.02 +8.3126 +8.2204
Euro/Sweden EURSEK= 10.1075 10.0605 +0.47 +2.73 +10.1366 +10.0561
Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci