On Tuesday the dollar was higher against its main rivals after Fed Governor Jerome Powell said the U.S. economy could meet the criteria for a rate hike as soon as September.
Powell’s comments also helped the dollar avoid a harmful influence of weaker-than-expected May durable-goods data.
Some analysts attributed the stronger greenback to fresh hopes for monetary-policy divergence came back into focus after Monday's optimistic home-sales data.
“People in the U.S. did not appreciate the significance of the U.S. home sales,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “It was the first-time buyers who bought a third of [homes]. This is boosting confidence that the Federal Reserve will raise rates.”
Last week FOMC signaled that interest-rate liftoffs would come more gradually than the market had expected, pouring cold water on the policy-divergence trade.
Policy divergence is the idea that the U.S. is slowly tightening
monetary policy, while central banks in Asia, Europe and much of the
developing world are easing, MarketWatch says.
Tighter policy is a way to solidify a currency, as higher rates boost returns on assets and deposits denominated in that currency.
In 2014 Fed policy makers ended a program of asset purchases,
known as quantitative easing. It was implemented after the financial
crisis.
Many investors expect policy makers to raise the Federal Reserve’s benchmark interest rate this year, after holding it near zero for almost seven years.
On Monday the dollar was higher in early U.S. trade with EUR/USD losing 1.66% to trade at 1.1152.
The dollar was also higher against the yen to trade at 124.06 shedding 0.56%.
U.S. Treasury yields extended their gains from Monday’s session, with the 10-year yield up 4.8 basis points to 2.410%.
