Investing.com – The dollar rose against a basket of major currencies on Tuesday, as investors mulled over Fed chair Janet Yellen's comments reaffirming the central bank’s view that raising rates gradually is the most appropriate policy measure.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.31% to 92.73.
“It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Yellen said Tuesday in the text of remarks prepared for delivery in Cleveland.
Following an initial spike higher the dollar eased somewhat, as investors mulled over Yellen’s concerns that the slowing pace of inflation could force rates to remain lower for longer, reducing the central bank’s ability to ease monetary policy at times of market distress.
"Sustained low inflation such as this is undesirable because, among other things, it generally leads to low settings of the federal funds rate in normal times, thereby providing less scope to ease monetary policy to fight recessions," Yellen said.
Yellen’s comments came just hours after the greenback shrugged off a duo economic reports showing weakness in both consumer confidence and the housing sector.
The Commerce Department said on Tuesday new home sales decreased 3.4% to a seasonally adjusted annual rate of 560,000 units last month, which was the lowest level since December 2016.
Economists had forecast new home sales rising 3.3% to a pace of 588,000 units last month.
In a report, the Conference Board, a market research group, said its index of consumer confidence decreased to 119.8 this month from a reading of 120.4 in August.
The pair of sluggish reports on economic growth failed, however, to spark a selloff in the greenback as weakness in both the euro and yen capped downside momentum.
EUR/USD fell to 0.41% to $1.1798 as concerns over the political fallout in Germany persisted, pressuring the single currency to a one-month low.
USD/JPY rose 0.42% to Y112.19, following Japanese Prime Minister Shinzo Abe’s decision to call an election a year early as he seeks a fresh mandate to overcome “a national crisis” amid rising threats from North Korea.
GBP/USD fell 0.08% to $1.3456 while USD/CAD fell 0.27% to $1.2337.