* Yellen signals rate rise possible in first-half 2015
* Dollar index at three-week high
* China's yuan deepens slide, hits one-year low
(Adds quotes, updates prices, changes byline, dateline,
By Michael Connor
NEW YORK, March 20 The dollar powered higher
against other major currencies on Thursday after Federal Reserve
Chair Janet Yellen surprised world markets by signalling that
increases in U.S. interest rates were not as far away as most
Yellen said the U.S. central bank would probably end its
massive bond-buying program in the autumn and could start to
raise benchmark rates around six months later, sooner than the
consensus of market expectations.
That appeared to leave the Fed markedly less accommodative
than central banks in Europe, Japan and elsewhere, according to
Camilla Sutton, chief foreign exchange strategist at Scotiabank
"It is hard to ignore that Chair Yellen did not sound like
the dove we expected and, in fact, sounded relatively optimistic
about the timing of interest rate hikes. This is (US dollar)
positive and supports our bearish euro and yen call," Sutton
The dollar, whose strength this year was one of the big bets
of many banks in January, has struggled so far in 2014, weighed
down by a rough winter that has at least temporarily cooled jobs
growth and other indications of a broadening economic recovery.
It gained more than a cent against the euro initially after
Yellen's comments on Wednesday, and after a sticky start, drove
another half a percent higher in morning trade in Europe.
"From this point forward, at least for the time being, you
will see a firmer tone to the dollar," said Stephen Gallo, a
strategist with Canadian bank BMO in London.
"Whether this kicks on will depend on the data showing the
U.S. economy emerging nicely from the weather-related dip, but
until we get the next batch of data at the start of next month,
Yellen has set the tone."
The dollar index, measuring its strength against a
basket of other major currencies, rose to a three-week high of
80.354. It was last up 0.3 percent at 80.257. The dollar
strengthened past resistance around $1.3810 per euro to
trade 0.4 percent stronger at $1.3775.
The yen was off 0.13 percent to 102.48 to the dollar
earlier but was up nearly 0.1 pct to 102.41 yen in New York in
"The market is trying to figure out whether Yellen misspoke
or really meant it," said Axel Merk, president at Merk
Investments in Palo Alto, California.
Many analysts have been burned by the dollar's failure to
rise in the first quarter of 2014, hit by a combination of the
poorer U.S. economic numbers, the reticence of the European
Central Bank to ease its own policy further and a flood of money
returning to the euro zone's battered southern bond markets.
Some were unwilling to buy the idea that Yellen's comments
marked a watershed in that debate.
"There's a lot of people who believe that the dollar should
be solidly higher," said Simon Derrick, a strategist with Bank
of New York Mellon, speaking earlier in the day.
"But the hard facts are that something different has been
going on and chiefly that has been a version of the carry trade,
among other things taking advantage of higher yields in the euro
zone periphery. We still face a 12-month period where we will
have cheap money being pumped out of the U.S."
The Canadian dollar slid to a 4-1/2-year low of
C$1.1273 against its U.S. counterpart and was last at C$1.1254,
while the Australian dollar fell back below 91 U.S. cents
and was last at $0.9034 in New York.
The Swiss franc also lost ground against the dollar,
unmoved by a Swiss National Bank statement and news conference
which tweaked its message on inflation but offered no sign of a
shift in policy.
Gallo said there was certainly more room for the dollar to
gain against its Canadian counterpart and others. It was roughly
a third of a percent higher against the Canadian, Australian and
New Zealand dollars.
"I would look for the dollar to remain strong against the
weaker currencies. We may have more difficulty against the euro
China's yuan also remained a focus, plunging to a
one-year low after the People's Bank of China set a lower
guidance for the currency, the second consecutive daily fall of
more than 1 percent from the central bank's midpoint.
The yuan has continued to weaken since the bank announced
over the weekend it would double the currency's permitted
trading range to 2 percent, underlining growing concerns over
China's economy and financial sector.
(Editing by James Dalgleish)