LONDON: The dollar fell against a basket of currencies on Wednesday after Federal Reserve Chair Janet Yellen suggested the central bank would not rush into raising US interest rates.
The drop in the dollar mirrored a pullback in US front-end yields from recent highs, as Yellen's testimony to Congress disappointed investors who had positioned themselves for a clearer signal on when rates would rise.
Yellen declined to provide much insight into when the word "patient" might be dropped from the Fed's monetary policy statement. Instead, she emphasized that dropping the word would not necessarily mean rate hikes were imminent.
Whether to raise rates will depend on economic data and will be decided on a meeting-to-meeting basis, she said.
"Some investors were positioned for more hawkish comments and they were disappointed," said Yujiro Goto, a currency strategist at Nomura. "We still hold a dollar bullish bias and if the US jobs data surprises to the upside next week, we could see a return of dollar strength."
The dollar index was down 0.25 percent at 94.245, with the greenback shedding ground against almost every major currency.
It fell 0.2 percent against the yen to 118.73 yen , while sterling rose to a eight-week high of $1.5538 . Against the euro, it was up 0.1 percent at $1.1355.
The dollar's drop was seen as temporary. The Fed still appears to be on track to raise rates later this year, although probably not in June as a few large banks had forecast.
In contrast, the European Central Bank is beginning a 60 billion-euros-a-month bond buying programme next month.
The Bank of Japan is already deep into a similar quantitative easing programme.
That makes the dollar a buy on dips, traders said.
"We attribute the FX market's reaction largely to positioning going into the (Yellen) event," said Susanne Galler, a currency analyst at Jefferies.
"In a nutshell, if the `patient' phrase remains in the March statement, forget about a hike in June. If it is dropped, anything goes as of June. But whether a hike will take place in June or as late as December will simply be data dependent."
The Australian dollar rose 0.7 percent to $0.7885, aided by the greenback's weakness and a survey showing that activity in China's mammoth factory sector edged up to a four-month high in February.
The Aussie is seen as a liquid proxy of Chinese growth prospects because of Australia's trade exposure to China.
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