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Bullish comments by Fed's Powell boost US dollar

New York

THE dollar rose to a three-week high on Wednesday, as demand increased after upbeat comments from US Federal Reserve chairman Jerome Powell about the US economy.

In congressional testimony on Tuesday, Mr Powell said he believed the United States was on course for years more of steady growth, and played down the risks to the US economy from the escalating trade conflict between Washington and Beijing.

He reiterated his remarks on Wednesday before a US House panel.

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Though Mr Powell did not alter future expectations on US monetary policy, traders saw his comments as signifying that authorities were comfortable with the greenback's near 6 per cent rise against its rivals in the last three months.

"For now, the market is of the view that the Fed is not overly concerned with the impact that a trade war could have," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"The comments from the Fed have put the focus on the divergent policy outlook between the Fed and other central banks. We're seeing that play out with the stronger dollar," he added.

Against a basket of six major currencies, the dollar rose 0.3 per cent to 95.202 after earlier hitting a three-week high, nearing a one-year peak of 95.53 hit in late June.

Data showing US housing starts fell 12.3 per cent in June briefly pared the dollar gains, however.

The greenback reserved most of its gains against the relatively higher-yielding currencies such as the Australian, Canadian and New Zealand dollars.

Though concerns the US economy may be nearing a peak as evident from a flattening yield curve and falling inflation adjusted-yields, the widening rate differentials between the US and other major markets also lifted the greenback.

The Fed is expected to hike rates two more times in 2018 to tackle rising inflationary pressures. Comparatively, the European Central Bank is expected to start raising rates only in mid-2019.

With US rates continuing to rise and most other major central banks taking only tentative steps towards monetary normalisation, many analysts expect more dollar upside. RBC is forecasting a year-end euro/dollar of US$1.12.

The dollar rallied to as high as 113.13 against the yen, its strongest since Jan 9. It was last at 112.79, slightly down on the day. REUTERS