Dollar falls after Fed's Yellen says caution appropriate

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The U.S. dollar hit its lowest level against the euro in over a week and fell against other major currencies on Tuesday after Federal Reserve Chair Janet Yellen said it was appropriate for the Fed to proceed "cautiously" in hiking interest rates.

In her first comments since the Fed decided to hold rates steady two weeks ago, Yellen sounded cautious about threats to the recovery of the world's biggest economy, appearing to push back on more hawkish recent comments from a handful of her colleagues.

Yellen's comments hurt the dollar by pushing out expectations for the central bank's next interest rate hike. U.S. Fed funds futures implied traders saw a 43 percent chance of the central bank hiking rates in July, down from 51 percent on Monday.

"It was definitely dovish," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, in reference to Yellen's speech at the Economic Club of New York. "This is another push in the direction of fewer interest rate increases."

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The euro rose more than 0.9 percent to $1.13, while the dollar slumped against the yen to a session low of 112.77 , easing further from a nearly two-week high of 113.80 yen hit early in the session.

In contrast to Yellen's cautious remarks, Philadelphia Fed President Patrick Harker said last week that the central bank should consider another rate hike as early as next month and that he would prefer at least three hikes before year-end. Atlanta Fed President Dennis Lockhart said the United States may be in line for a rate hike as soon as April.

"Given the much less dovish-than-expected commentary we got from a number of Fed speakers last week, many were looking for a shift in tone from Ms. Yellen and we didn't get that," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

The dollar hit an eight-day low against the Swiss franc of 0.9678 franc. The dollar index, which measures the greenback against a basket of six major currencies, hit a one-week low of 95.268 and was last down 0.82 percent at 95.16.

On Wall Street, the benchmark Standard & Poor's 500 stock index was up 0.87 percent.