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Yellen May Just Have Pushed the Dollar Into a Bull Market vs. the Euro

NEW YORK (TheStreet) -- It seems as if the market is turning to favor the U.S. dollar. The market for euros in terms of dollars has fallen below $1.3600, and Thursday euros have been trading as low as $1.3438. There is even some chatter around the market that this rate may fall as low as $1.3200 by the end of this year.

This is a different market feeling today than two weeks ago, when the U.S. dollar was not so strong against the euro. The difference seems to be the recent testimony before Congress of Federal Reserve Chair Janet Yellen.

The key statement made by Yellen: interest rates may rise sooner than expected.

Although relatively benign, the tone of her comments has received a great deal of attention and, given the situation faced by Mario Draghi, President of the European Central Bank, has been taken as a signal that the U.S. dollar should become stronger in the near term.

Last month Draghi and the ECB dropped interest rates, lowering one policy rate below zero. Furthermore, there is still major concern that the eurozone may fall back into recession, which would put pressure on the Central Bank to consider further easing measures -- even to consider the possibility of creating its own brand of quantitative easing.

Yellen, in her testimony, alluded to the fact that the economic recovery in the U.S. might be recovering more rapidly than had been thought recently. This might contribute to the need for interest rates to rise sooner than previously expected.

U.S. monetary policy would become tighter relative to European monetary policy. And this tends to result in the value of the currency of the tighter-money country rising against the currency of the easier-money country.

We might be at a turning point for the value of the U.S. dollar.

The question is: what will be the timing of the interest rate rise in the U.S.?

I am concerned about the reason for a rise in interest rates, too. Right now, officials at the Federal Reserve seem to be thinking that short-term interest rates will begin to rise by the middle of 2015. And the general assumption seems to be that the Fed will cause that rate rise.

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