US dollar hits five-week high on Yellen remarks but and then gives up its gains

The US dollar hit five-week highs against the euro on Tuesday after Federal Reserve Chair Janet Yellen was seen as striking a slightly hawkish tone on rates, before the greenback gave back some gains as the move was seen as overdone.

The Fed needs to continue gradual rate increases despite broad uncertainty about the path of inflation, Yellen said in remarks that acknowledged the central bank’s struggles to forecast one of its key policy objectives.

The dollar was last up 0.35 per cent against the single currency at US$1.1808, after briefly strengthening to US$1.1756, the strongest level since August 23, immediately after Yellen’s comments.

“Yellen kind of confirmed that they intend to continue to raise interest rates,” said Kathy Lien, managing director at BK Asset Management in New York.

However, “I think for the most part they are realising that December is a long time from now and the next policy action will come from other parts of the world,” Lien said. “You are seeing the dollar gains lose traction.”