Wall Street shares closed higher Friday, recording a solid week of gains, after Federal Reserve Chair Janet Yellen said an interest rate hike in the next few months would probably be appropriate. The dollar rose to a one-month high against the yen on Monday and climbed to new highs against its other rivals after comments by the Fed Chair bolstered the prospects of a near-term US interest rate hike.
In addition to the latest round of hawkish-sounding comments from Yellen, political developments in Tokyo were also seen supporting the dollar against the yen. Japanese Prime Minister Shinzo Abe said he would delay a sales tax hike scheduled for next April by two and a half years, a senior ruling party official said after a meeting with the premier on Monday.
Japan is also expected to continue its path of looser monetary policy and further monetary easing is expected by the Bank of Japan.
Yellen's rate hike endorsement was just what forex traders were looking for to take the already-bullish dollar higher after a recent run of upbeat US economic indicators and comments from top Fed officials that supported a near-term tightening. EUR/USD dipped below 1.11 to 1.1097, a 2-1/2 month low, on Monday and last traded at 1.1115. The Dollar index hit a peak of 95.940, its highest in two months.
The yen fell broadly, with USD/JPY up more than 1 percent to 111.45 while EUR/JPY is up 1.25 percent to 123.87. The Aussie dollar was under pressure against a buoyant dollar. AUD/USD fell to 0.7148. A drop below $0.7145 would take the Australian dollar to a three-month low.
Gold fell below $1,200 for the first time in more than three months on Monday, after Janet Yellen's remarks. The Fed is now expected to raise interest rates "in the coming months" if the economy picks up as expected and jobs continue to be generated, bolstering the case for a rate hike in June or July.
