Dollar gains as Yellen says US economy strengthening

08/05/2014 07:39 AST

NEW YORK: The dollar edged higher against the euro Wednesday after Federal Reserve Chair Janet Yellen said that the US economy was strengthening and the stimulus taper will continue steadily.

But the move upward against the euro and yen was tempered by Yellen's reiteration of the Fed's overall dovish stance, saying that the economy still needs the help of ultra-low interest rates and that there was still no threat from inflation.

She also cautioned over the still-high level of slack in the jobs market and the slowdown in the real estate market as reasons to keep policy highly accommodative.

"With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter," she told a congressional panel.

Paul Edelstein, economist at IHS Global Insight, said the testimony at least confirmed that the quantitative easing stimulus will be wound up late this year. He added that the Fed sees a full economic reversal requiring more stimulus as highly unlikely.

"For the Fed, the key domestic risk is now the housing recovery. But the baseline assumption is for a return to growth," he said.

Meanwhile expectations for the policy meeting of the European Central Bank Thursday were for no change in policy.

"We doubt that recent events and data releases have been significant enough to ensure more policy action from the ECB," said Jennifer McKeown at Capital Economics.

"We expect a very dovish tone from (ECB chief Mario) Draghi to hint that such action might be taken at the June meeting."

Business Recorder