Dollar at 1-month high vs euro, multi-week highs vs yen and franc on Yellen rate hike remarks

The US is expected to continue to expand at a moderate pace and waiting too long to raise rates would be unwise, Yellen said on Monday.

Stock rotation to continue as Fed seen open to 2016 hike
Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking Committee at Capitol Hill in Washington. Reuters

The US dollar rallied across the board on Tuesday as Federal Reserve chair Janet Yellen said the US is unlikely to wait so long for further rate hikes given the pace of economic growth.

Against the euro, the greenback jumped to a 1-month high and versus the New Zealand, Swiss and Japanese currencies, it strengthened to multi-week highs.

EUR/USD dropped to 1.05600, its lowest since 11 January, from the previous close of 1.05950. It was the seventh straight day of dollar rally.

The single currency is now more likely headed for parity versus the US unit especially as the European Central Bank's latest stance is for further easing as against the tightening bias on the US side.

USD/JPY strengthened to 114.510 from the previous close of 113.353, further moving off the two-month low of 111.595 hit in the previous week. On Tuesday, the yen proved to be the strongest gainer against the US dollar among majors.

USD/CHF rose to 1.00855 from its previous close of 1.00293, adding to the 1% gain posted on Monday and pushing further off the 3-week low of 0.98605 hit last week.

Against the New Zealand dollar, the US currency strengthened to 0.71343/USD from Monday's close of 0.71966 while AUD/USD slipped to 0.76394 from 0.76756.

The US economy is expected to continue to expand at a moderate pace and waiting too long to raise rates would be unwise, the Fed Chair Yellen said in prepared remarks to the Congress.

Still, the economic outlook and fiscal policy face uncertainty and any changes in monetary policy will depend on incoming data, Yellen added.

Factory Gate Inflation

Producer prices in the US advanced 0.6% month-over-month in January, following a 0.3% rise in the previous month and beating market consensus of a 0.3% gain.

It was the sharpest increase since September 2012 as prices for final demand goods increased 1%, the largest rise since May 2015, driven by rising cost of energy products (4.7% from 1.8% in December), details showed.

Also, prices for final demand services went up 0.3%, as the volatile trade services component, which measures changes in margins received by wholesalers and retailers, jumped 0.9% after showing no growth in the prior month.

Year-on-year, producer prices rose 1.6%, the same as in December but above expectations of a 1.5% increase.

Inflation Data, Continuing Fed Talk

The US inflation data for January will be released on Wednesday (Feb 15) which will be the next key data point for the greenback. However, with Yellen scheduled to speak one more day in the Congress, her words will be watched more keenly.

The year-on-year headline inflation rate is seen accelerating to 2.4% in January from 2.1% in December as per consensus estimate even though the core inflation measure is seen slipping to 2.1% from 2.2%.

US Fed's Rosengren and Harker are scheduled to speak at various events on Wednesday which will also be crucial especially in the backdrop of the hawkish Yellen remarks on Tuesday.