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CURRENCIES

Dollar rises to 1-year high after bullish Fed remarks

London

THE dollar rose to a one-year high on Thursday as investors strengthened bets on the currency's long-term strength following upbeat comments on the US economy by the Federal Reserve's chairman.

Jerome Powell did not alter expectations of US monetary policy in his addresses to Congress on Tuesday and Wednesday, but traders saw his remarks as signifying that authorities were comfortable with the dollar's near 6 per cent rise against its rivals in the last three months.

That represents a shift in the stance laid out by Treasury Secretary Steven Mnuchin, who in highly unusual remarks in January said a lower dollar was "good for us".

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A weaker dollar would help American exporters compete abroad but it may undermine its status as the world's top reserve currency.

On Wednesday, Mr Powell said he believed the United States was on course for years more of steady growth, and carefully played down the risks to the US economy of an escalating trade conflict.

The dollar index versus a basket of six major currencies on Thursday jumped half a per cent to 95.557, its highest since last July.

That put pressure on the euro which sank 0.4 per cent to a two-week low of US$1.1586.

Meanwhile, the widening trade rift between China and the US knocked the yuan to a one-year low in both the onshore and offshore markets.

The yuan has weakened 6 per cent since June 15 when US President Donald Trump said he was pushing ahead with hefty tariffs on US$50 billion of Chinese imports.

"The Fed chief does not appear to be overly concerned about the flatter yield curve and the central bank is signalling further interest rate increases. We see limited potential for a near-term turnaround in dollar strength," said Chris Turner, head of currency strategy at ING in London.

Though concerns remain the US economy may be nearing a peak as evident from a flattening yield curve, the widening rate differentials between the US and other major markets have lifted the dollar.

The two-year Treasury yield stood near 2.624 per cent, its highest since August 2008 scaled on Wednesday.

"We are firmly of the view that broad-based USD strength can continue. Powell's testimony signalled there is no intention of changing its policy of gradual interest rate hikes. In addition, risks remain around the outlook for emerging markets," analysts at Rabobank said in a note. REUTERS