The dollar powered higher against its major currency peers on Thursday after a surprise message from Federal Reserve head Janet Yellen that rises in U.S. interest rates were not as far away as most had thought.
Yellen said the U.S. central bank would probably end its massive bond-buying program in the autumn, and could start to raise interest rates around six months later, sooner than the consensus of market expectations.
The dollar, whose strength this year was one of the big bets of many banks in January, has struggled so far in 2014, weighed down by a rough winter that has at least temporarily cooled jobs growth and other indications of a broadening economic recovery.
It gained more than a cent against the euro initially after Yellen's comments on Wednesday, and after a sticky start, drove another half a percent higher in morning trade in Europe.
The dollar index, measuring its strength against a basket of other major currencies, rose to a three-week high just above 80.30. It strengthened past resistance around $1.38 per euro to trade about 0.5 percent stronger just below $1.38.
The yen fell 0.13 percent to 102.48 yen.
Many analysts have been burnt by the dollar's failure to rise in the first quarter of 2014, hit by a combination of the poorer U.S. economic numbers, the reticence of the European Central Bank to ease its own policy further and a flood of money returning to the euro zone's battered southern bond markets.
Some were unwilling to buy the idea that Yellen's comments marked a watershed in that debate.
If the heart of the argument for dollar strength this year is a rise in the return on U.S. Treasuries then Yellen's comments certainly delivered.
The benchmark Treasury yield was trading around 9 basis points higher than a day earlier at 2.77 percent.
The slid to a 4-1/2 year low of near C$1.13 against its U.S. counterpart, while the fell back below 91 U.S. cents and was last above $0.90.
The Swiss franc also gave up 0.6 percent against the dollar, unmoved by a Swiss National Bank statement and news conference which tweaked its message on inflation but offered no sign of a shift in policy.
Gallo said there was certainly more room for the dollar to gain against its Canadian counterpart and others. It was roughly a third of a percent higher against the Canadian, Australian and New Zealand dollars.
China's yuan also remained a focus, plunging to a one-year low after the People's Bank set a lower guidance for the currency, the second consecutive daily fall of more than 1 percent from the central bank's midpoint.
The yuan has continued to weaken since the bank announced over the weekend it would double the currency's permitted trading range to 2 percent, underlining growing concerns over China's economy and financial sector.
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