The US dollar backed slightly from a three-week high on Wednesday as investors took advantage of the gains made by the US currency two days after US Federal Reserve Chairman Jerome Powell’s testimony assured a strong economic outlook.
In his testimony before the US Congress on Tuesday and Wednesday, Powell said he believed the United States was on its way for years of steady economic growth and reduced the risks to the US economy from any escalating and potential trade conflict.
The greenback was up against a range of major rivals and hit a three-week high of 95.4 points before settling at 95.08 points, gaining 0.2%. According to senior market economic analysts, the new decline in the US dollar is pointing to moves by investors who are taking profits after a good rally of the dollar.
The dollar rose 0.43% against the British pound after the British currency fell to a 10-month low, amid weak inflation data and uncertainty about Britain’s exit plans from the European Union.
The Chinese yuan also fell 0.41% against the US dollar in foreign trade. This came after the chief economic adviser of US President Donald Trump accused Chinese President Xi Jinping of blocking a trade deal between the United States and China.
The dollar also rose to its highest level against the yen to 113.13 yen against the dollar, its strongest level since Jan. 9.
The US currency also retained most of its gains against relatively high yielding currencies such as the Australian dollar, the Canadian dollar and the New Zealand dollar.
Despite concerns that the US economy may be nearing a peak, the rising price differentials between the United States and other markets has also raised the value of the US currency against its major rival currencies.
The Reserve Board is expected to raise interest rates two more times in 2018, to address rising inflationary pressures. Thus, the ECB is expected to start raising interest rates only in mid-2019. As US interest rates continue to rise and most other major central banks taking small steps towards monetary normalization, many analysts expect further appreciation in the value of the dollar.