Loonie boosted as Bank of Canada delivers first rate hike in 7 years.
The U.S. dollar rose in volatile trading on Wednesday, gaining ground after Federal Reserve Chairwoman Janet Yellen said that any subsequent interest rate increases would be gradual, and that they wouldn’t need to rise much to reach a “neutral policy stance.”
The buck initially pared its gains following Yellen’s comments, which were in testimony prepared for delivery before the House Financial Services Committee, but it subsequently rebounded, seeing particular strength against the euro.
The ICE Dollar Index DXY, +0.20% which measures the dollar against a basket of six currencies, rose 0.1% to 95.80. The buck remains near a recent low that represented its weakest level since November.
The WSJ Dollar Index BUXX, +0.00% which looks at the greenback against a wider set of rivals, fell 0.3% to 87.98.
Fed officials have said they plan on lifting rates at least once more in 2017 and commencing a reduction of its bloated $4.5 trillion balance sheet, which could act as an additional tightening measure.
Read MarketWatch’s live blog recap of Yellen’s testimony before House panel
“The key takeaway is how confident Yellen is that rate hikes are needed over the next few years, which means there’s a commitment that inflation will need to be combated a bit,” said Juan Perez, a currency trader at Tempus Inc.
The euro EURUSD, -0.3310% slipped to $1.1418 versus the dollar from $1.1468 late Tuesday in New York. It swung in a range of $1.1409 to $1.1490.
“Yellen has created a policy divergence. Compared with other central banks, the Fed is in a hike mode, trying to normalize policy, which may limit how much the euro can rise,” Perez said.
Against the yen, the dollar USDJPY, -0.15% fell to ¥113.26 from ¥113.94 late Tuesday in New York.
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The pound GBPUSD, -0.0153% traded at $1.2890 from $1.2845 late Tuesday. Sterling was volatile after Bank of England Deputy Gov. Ben Broadbent said in an interview Wednesday that uncertainties surrounding the outlook for the British economy makes it a difficult time to support an increase in borrowing rates. The pound fell as low as $1.2811 on Wednesday, though it also rose as high as $1.2908.
Loonie in the spotlight: Meanwhile, the Canadian dollar USDCAD, -0.0836% turned higher after the Bank of Canada raised interest rates, as expected. The dollar fell 1.6% against the Canadian dollar, which traded at C$1.2708 from C$1.2917.
The day’s move only extends a recent trend, as the loonie has gained about 5% in the past four weeks against the dollar.
Stubbornly low oil prices, though, remain a headwind for the currency, along with negotiations around the North American Free Trade Agreement.
In other trades, the Brazilian real surged 1.4%, hitting its highest level in nearly two months after the country’s senate voted to overhaul its labor laws. The currency rose to 3.2072 to the dollar from 3.2542 late Tuesday.