EUR/USD
The euro fell against a strengthening dollar on Tuesday after Federal Reserve Janet Yellen delivered an upbeat take on the U.S. economy in Congress though with an added warning that small-cap stocks may be frothy. Yellen told the Senate Banking Committee earlier that the U.S. economy continues to improve but added that the recovery is not yet complete. She said that considerable slack still remains in the labor market and wage growth remains weak. Yellen reiterated that rates are likely to remain on hold for a considerable period after the bank’s quantitative easing program ends, though her observation that small-cap, biotech and other momentum stock valuations appear "stretched" gave the dollar support, leaving investors to conclude that interest rates could rise sooner than later if the labor market improves.
GBP/USD
The pound rose to fresh five-and-a-half year highs against the U.S. dollar on Tuesday, following dovish comments by Federal Reserve Chairwoman Janet Yellen and as earlir U.K. data continued to support. The remarks came during testimony to the Senate Banking Committee in Washington. The Fed chair reiterated that rates are likely to remain on hold for a considerable period after the bank’s quantitative easing program ends. Interest rates could rise sooner more quickly if the labor market was to improve more quickly than expected she said, but added that if the economic recovery is disappointing interest rates would remain accommodative. The pound strengthened earlier, after the Office for National Statistics reported that consumer prices rose 1.9% on a year-over-year basis in June, accelerating from 1.5% in May and well above expectations of 1.6%.
USD/JPY
The Japanese yen was slightly weaker after the Bank of Japan board Tuesday decided by a unanimous vote to leave the bank's policy target unchanged as expected at its two-day monthly meeting "The exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy," the RBA said in the minutes posted on its Website. Overnight, the dollar held steady against most major currencies on as investors stood on the sidelines before Federal Reserve Chairwoman Janet Yellen testifies before Congress on Tuesday and Wednesday.
USD/CAD
The U.S. dollar was close to three week highs against the Canadian dollar on Tuesday as investors turned their attention to congressional testimony by Federal Reserve Chair Janet Yellen later in the session. The Commerce Department reported that U.S. retail sales rose just 0.2% in June, below forecasts for a 0.6% increase. Retail sales for May were revised up to 0.5% from a previously reported 0.3%. The Canadian dollar remained under pressure after unexpectedly weak domestic employment data last week indicated that the Bank of Canada would keep rates on hold at 1% at its upcoming policy meeting on Wednesday.
