Dollar falls as Yellen says economy still needs Fed’s stimulus

The dollar fell the most in three weeks as Federal Reserve chairman nominee Janet Yellen said the economy must improve before monetary stimulus can be trimmed.

The pound gained after the Bank of England improved its outlook for unemployment in its quarterly inflation report. The euro erased losses against the dollar amid bets the decline was excessive as traders bet that the European Central Bank won’t embrace quantitative easing anytime soon. Sweden’s krona slid as Finance Minister Anders Borg said a strong currency was a “risk” to the economy. U.S. stocks rose to a record.

“The equity market isn’t worried about tapering, why should the currency market be worried about it?” Yra Harris, the chief trader and analyst at Praxis Trading in Chicago, said in a telephone interview.

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major counterparts, fell 0.4% to 1,018.48 as of 4:49 p.m. in New York, the biggest drop since Oct. 22. The gauge reached 1,025.01 yesterday, the highest since Sept. 13.

The euro rose 0.3% to $1.3482 after falling as much as 0.3%. The yen gained 0.4% to 99.24 per dollar after sliding to 99.80 yesterday, the weakest level since Sept. 13. Japan’s currency traded at 133.83 per euro.

The Standard & Poor’s 500 Index of stocks gained 0.8% to 1,782, reclaiming its record on a closing basis for the first time since Oct. 29.

Yellen Appearance

Unemployment is “still too high, reflecting a labor market and economy performing far short of their potential” and that inflation is “expected” to remain below the Fed’s goal for 2% price increases, Yellen said in testimony prepared for her nomination hearing tomorrow before the Senate Banking Committee.

Yellen will be defending quantitative easing, a policy of buying bonds to drive down yields and lift asset prices, which has swelled the Fed’s balance sheet to almost $4 trillion while facing four Republicans who voted “no” on her 2010 successful bid to be vice chairman.

The U.S. Federal Reserve will pare its bond-buying program to $70 billion at its March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg News survey on Nov. 8.

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