Yellen’s speech yields no new information
US dollar slipping Wednesday after Fed Chair Yellen steers clear of any hawkish hints ahead of her two-day testimony before Congress.
Yellen’s speech was released ahead of her address at 10 am EST. While the Fed remains on track to begin shrinking its balance sheet and raise interest rates again before the end of the year, there was little to spur hopes of a more aggressive cycle. The Fed Chair maintained a neutral bias on the whole.
“The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices.”
Yellen says inflation response to the economy is a key uncertainty and will continue to carefully monitor it. Risks to the US economic outlook are “roughly equal” she added.
While her comments were largely unchanged from the latest FOMC meeting, investors have taken this as a dollar-negative.
The Russia saga continues
Politics also plaguing the USD. The release of President Donald Trump’s eldest son’s emails yesterday. The emails revealed Trump Jr. set up a meeting with a Russia-linked lawyer during the presidential campaign. He sought to obtain potentially damaging information on Hillary Clinton.
Trump Jr. said he saw the meeting as an opportunity to do opposition research, not a collusion with the Russian government.
Market reaction to the information was fairly muted yesterday afternoon. A slight dollar drop that failed to pick up momentum. This is another log on the stockpile of political risks, but for now no real fires have been lit.
Euro hits 14-month high
Soaring to highs not seen since May 2016, the euro remains underpinned as a weaker dollar compounds continued euro strength.
Industrial production rose significantly in May. Expanding at an annual clip of 4.0%, it was the best reading since August 2011 as output rose more than expected in the 19 euro area countries. Euro is holding at the highest levels since before Brexit on the news.
This is a tail-end indicator that confirms strong business sentiment is feeding through in terms of hard data. Eurozone economic sentiment hit near a 10-year high in June which supports the notion of a strong, sustained recovery.
Sterling takes a breather
UK employment hit a record high last month, helping support the pound from another fall Wednesday morning.
The UK’s headline employment rate expanded to 74.9% in June. This is the best reading in the history of the index.
Wages also grew more than expected, up 2%. Despite the gains in earnings, this is still below the UK’s 2.9% inflation rate. This means that real wages are still falling in net terms which will weigh on consumer purchasing power.
EURUSD: Euro backing down from a 14-month high as Fed Chair Yellen begins her two-day testimony before Congress.
GBPUSD: Strong gains in UK employment are propping up the pound, but our worries are far from over as inflation is rising faster than wages.
AUDUSD: Aussie dollar stronger against the greenback as higher oil prices help support commodity currencies.
USDCAD: Canadian dollar higher against the greenback ahead of the Bank of Canada meeting. The BoC is expected to raise interest rates for first time in nearly 7 years.
USDJPY: The dollar giving up a cent against the yen, retreating from two-month highs as Fed Chair Yellen begins her testimony before Congress.