NEW YORK: The US dollar on Monday rallied to its highest in nearly three weeks against a basket of currencies on rising expectations US monetary stimulus will be scaled back in the near term.
The shift in sentiment has prompted investors to unwind bets that the Federal Reserve was not ready to end its bond-buying program, known as quantitative easing. The unwinding, however, could take months.
The dollar has gained across all major currencies since Fed Chairman Ben Bernanke said last Wednesday that the US central bank could taper its monthly $85 billion in asset purchases if the economy continues to improve. US bonds and stocks have sold off since the Fed announcement.
"The optimism by the Fed fell in sharp contrast to other prominent central banks, such as the Bank of Japan, Bank of England, European Central Bank, and Reserve Bank of Australia, which are seeking measures to thwart a further economic slowdown to their respective jurisdictions," said Ravi Bharadwaj, market analyst at Western Union Business Solutions in Washington.
In late trading, the dollar index was up 0.1 percent at 82.405 after rising as far as 82.841, its highest since June 5. The gains added to last week's 2.2 percent rally, its biggest weekly rise since November 2011.
Bernanke's comments have helped push up the benchmark 10-year US Treasury note's yield to its highest in almost two years on Monday with interest rate differentials moving in favor of the dollar. US 10-year yields were at 2.568 percent in late afternoon trading.
The dollar came off their highs, however, after the Dallas Fed President Richard Fisher said on Monday an exit from monetary easing "is way out in the future."
"Given stretched valuations of depreciated risk currencies, buying the dollar, yen, and Swiss franc - the safe havens - against them at current levels could backfire if pricing caused by more hawkish Fed expectations is not validated by actual Fed policy," said Dan Dorrow, head of research at FX broker Faros Trading, in Stamford, Connecticut.
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