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Dollar extends gains on Yellen talk of rate hike

NEW YORK (AFP) – The dollar powered higher Friday after Federal Reserve Chair Janet Yellen said the US economy was improving enough to support an increase in interest rates “probably in the coming months.”

Yellen, speaking at a Harvard University event, said that since the economy s slowdown in the first quarter, activity appeared set to accelerate and the labor market, where the unemployment rate has fallen to 5.0 percent, would continue to strengthen.

“The economy is continuing to improve,” Yellen confirmed. “Growth looks to be picking up.”

In that case, she said, “probably in the coming months such a move would be appropriate.”

Yellen s comments opened the door to a rate hike at the June 14-15 or July 26-27 meeting of the policy-setting Federal Open Market Committee.

The dollar rose against all its major peers. Around 2100, the greenback was trading 0.7 percent higher against the euro at $1.1113. The dollar rose to 110.37 yen from 109.76 yen.

“This was exactly the type of endorsement that the market had been hoping for and they rewarded the dollar as a result,” said Kathy Lien, head of forex strategy at BK Asset Management.

“The rally in the dollar is still relatively modest but with Yellen s blessing we could see further gains in the greenback next week,” Lien said.

After she spoke markets were putting a 60 percent chance that the next increase would come in July.

Yellen s comments came ahead of the long Memorial Day weekend, with markets on holiday Monday.

Analysts noted a hefty US economic calendar next week, to be capped Friday by the May jobs report, the last key reading on the labor market before the June Fed policy meeting.