* Yellen says labour market far from healthy, but improving
* UK inflation lifts sterling, NZ dips on soft CPI
* China industrial output, GDP next in focus
By Ian Chua
SYDNEY, July 16 The dollar clung to modest gains
early on Wednesday after bulls latched onto a comment by the
head of the Federal Reserve that rates could rise sooner if
employment continued to improve, while strong inflation sent
sterling to a six-year high.
The dollar index last traded at 80.388, near the
close in New York where it climbed 0.3 percent. The greenback
was at one-week highs on the yen at 101.67, while the
euro wallowed at a near one-month low of $1.3562.
Speaking to a Senate committee on Tuesday, Federal Reserve
Chair Janet Yellen defended the current loose policy setting,
saying the economic recovery was not yet complete.
Yellen said early signs of a pickup in inflation weren't
enough for the Fed to accelerate its plans for raising interest
rates, but conceded that this might change if the labour markets
improved more quickly than expected.
"The testimony does not change our Fed forecast, but it does
support our view that there is a risk that the first rate hike
may occur sooner than our June 2015 forecast if the labour
market continues to improve faster than the committee expects,"
wrote analysts at Barclays in a note.
Across the pond, surprisingly strong British inflation and
house price growth prompted investors to raise bets that the
Bank of England will lift interest rates before the year ends.
That helped push sterling higher across the board. It
reached a fresh six-year high of $1.7190, and scaled a
near two-year peak at 79.08 pence per euro.
British inflation surged to a five-month high last month and
house prices rose at their fastest in years.
Price pressure in New Zealand, on the other hand, was benign
with the annual inflation rate coming in at 1.6 percent versus
expectations for 1.8 percent. That was well within the Reserve
Bank of New Zealand's (RBNZ) target range.
The outcome could take the pressure off the RBNZ to tighten
policy much more this year, although another quarter point hike
next week seems a done deal.
The kiwi dropped nearly half a U.S. cent on the data to a
low of $0.8722, pulling further away from a recent high
of $0.8839 and its post-float peak of $0.8842 set back in August
Sentiment for the kiwi had already soured after
international milk prices fell and volumes dropped at an auction
held by New Zealand's Fonterra Co-operative Group, the world's
biggest dairy exporter.
It's Australian counterpart also lost ground against a
broadly firmer greenback, trading at $0.9367 after
finding a bit of support at a one-week trough of $0.9348
The near-term outlook for the Antipodean currencies now
rests on a batch of economic data out of China, a major export
market for Australia and New Zealand.
Any disappointment in the Chinese figures, which include
industrial output and gross domestic product, will no doubt
renew pressure on both currencies.
(Editing by Stephen Coates)