Dollar strength continues after Yellen comments

The dollar extended gains yesterday and stocks dipped on Wall Street, as Federal Reserve Chair Janet Yellen signalled a readiness to hike interest rates and investors took in US data that indicated a strengthening labour market.

Ms Yellen said she was “looking forward” to a US interest rate hike that will be seen as a testament to the economy’s recovery from recession.

“There could be events I suppose, terrorism or otherwise, that could make you postpone, but I think the certainty of [a rate hike] is up over the 90 per cent mark,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

“The Fed has given investors a lot of time and a lot of direction that they plan to do this, if it is coming as a surprise to you now, you just haven’t been following this.”

US private employers boosted hiring in November. The ADP National Employment Report showed private payrolls increased 217,000 last month while a separate report showed nonfarm productivity grew at a faster pace than previously thought in the third quarter.

The US dollar index extended gains after Ms Yellen’s remarks to a high of 100.51, its highest level since March 2003.

The dollar initially strengthened on the currency markets, indicating more confidence that higher interest rates were around the corner.

"Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

As in previous speeches and public appearances, Ms Yellen said the timing of the first US rate increase in nearly a decade was not as important as the path of subsequent hikes, which policymakers expect will be gradual. Waiting too long to raise rates could deal an accidental blow to the economy, she warned.

"An abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession," she said.

European stocks pared gains late but managed to hold near a three-and-a-half-month high and the euro hit a seven-and-a-half-month low in the wake of Ms Yellen’s comments and on expectations the European Central Bank will engage in more stimulus after its meeting today.

The Dow Jones industrial average fell 38.01 points, or 0.21 per cent, to 17,850.34, the S&P 500 lost 7.25 points, or 0.34 per cent, to 2,095.38 and the Nasdaq Composite added 8.13 points, or 0.16 per cent, to 5,164.44.

MSCI’s all-country world index of equity performance in 46 countries shed 0.36 per cent.

The pan-European FTSEurofirst edged up 0.01 per cent.