Forex – EUR/USD drops as dollar gains on Yellen testimony

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Dollar gains as Yellen testimony begins dovish and ends a little more hawkishDollar gains as Yellen testimony begins dovish and ends a little more hawkish

Investing.com – 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.

In U.S. trading, EUR/USD was down 0.35% at 1.3572, up from a session low of 1.3562 and off a high of 1.3628.

The pair was likely to find support at 1.3513, the low from June 16, and resistance at 1.3640, Monday’s high.

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.

Yellen’s comments overshadowed mixed U.S. data, which depicted an economy that continues to recover albeit on a road with lingering potholes.

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, however, were revised up to 0.5% from a previously reported 0.3%.

A separate report showed that manufacturing activity in New York state rose to a four-year high this month. The Empire state manufacturing index rose to 25.6 in July from 19.3 in June. Analysts had expected the index to decline to 17.0.

Meanwhile in Europe, the ZEW index of German economic sentiment fell to 27.1 in July from 29.8 in June. Analysts had expected the index to tick down to 28.0, and the disappointing number softened demand for the single currency.

Elsewhere, the euro was down against the pound, with EUR/GBP down 0.73% at 0.7914, and down against the yen, with EUR/JPY down 0.28% at 137.91.

On Wednesday, the U.S. is to release reports on producer price inflation and industrial production. Meanwhile, Fed Chair Janet Yellen Carney is to testify on monetary policy before the House Financial Services Committee.



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