The dollar rose to a three-month high against the yen and climbed versus the euro after Federal Reserve Chairman Ben S. Bernanke made a speech at a Boston Fed conference that economic risks have faded, spurring traders to boost wagers interest rates will rise.
In New York session, the dollar rose to 107.45 (the highest since Feb. 27) and 1.5441 versus yen and euro respectively. Futures on the CBOT show a 52 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by at least a quarter point at its Aug. 5 meeting, compared with 31 percent the previous day. The contracts show a 96 percent chance the Fed will increase the rate by December, up from 67 percent odds a week ago.
The Bank of Canada held its key interest rate steady at 3 percent on Tuesday in a surprise move and signaled an end to its rate-cutting cycle because of unexpectedly strong inflationary pressures. The Canada dollar rose sharply after the announcement and then strengthen from 1.0324 to 1.0196 before stabilising to around 1.0230
The U.S. dollar climbed to 0.9441 and 0.7501 versus Australian dollar and New Zealand dollar, the strongest since January. The British pound slid from 1.9755 to 1.9551 after data showed that U.K. house prices dropped in May (RICS house balance, -92.9 in May and DCLG house prices fell from previous month at 5.2% to 4.9% Y/Y in april).
The U.S. dollar index traded on ICE futures in New York rose 1.1 percent to 73.671, the biggest one-day gain since Dec. 14. The index tracks the dollar against six major trading partners including the yen, euro and pound.
On Wednesday, economic data releases include U.K. nationwide consumer confidence and PMI service, German PMI service, Eurozone PMI service PMI and retail sales, as well as U.S. ADP employment, labour cost, productivity and ISM non-manufacturing. Federal Reserve Chairman Ben Bernanke will also speak at 18:45 GMT.