The US dollar pulled back and slipped against other major currencies on Thursday, dragged by speculations that Federal Reserve chair Janet Yellen will rather express worry over the pace of the currency and rise in bond yields.
The greenback had previously surged to a 13 1/2-year high last week and is accompanied by an increase in bond yields. Under a Donald Trump presidency, inflation is expected to grow, thus rallying the dollar. Sustaining this boost is the optimism over the US economy, expectations for a December rate hike and remarks by another Fed member.
However, with two months until the Republican’s inauguration and a surge in Fed interest rates now fully priced in December, several banks say the currency could slide.
Valentin Marinov, chief of G10 FX strategy at Credit Agricole, described Fed speakers this week as “divided” on their view on the efficient tightening of monetary conditions since Trump's election.
“She [Yellen] may not share markets' enthusiasm about the future impact of Trump's policies. And she could express concern about the dollar's rapid gains and the tightening of conditions through higher bond yields. That could spur some profit-taking on the bullish dollar positions.” He said.
Yellen is scheduled to testify to the congressional Joint Economic Committee starting 15:00 GMT. The Fed chief is likely to be asked to comment on the day’s data when answering questions from Congress, such as how tax cuts or fiscal stimulus under President-elect Donald Trump could affect the economic and interest rate outlook.
Her comments will be monitored carefully for any new signal on policy. The Fed left interest rates unchanged earlier this month, but hinted it could hike in December as the economy gathers momentum and inflation picks up. As of now, the markets are pricing in an 85.5% chance of the rate increase by year-end.
The dollar was also boosted after Philadelphia Fed head Patrick Harker expressed his approval in raising interest rates on Wednesday. Meanwhile, Cleveland Fed President Loretta Mester claimed the Fed must not overreact immediately to market moves following the shock of the presidential results.
Shinichiro Kadota, a Tokyo-based FX strategist for Barclays, said that the US yields have been vital in the dollar’s pace. “Rises in U.S. yields have been a significant factor behind the dollar's strength, but since that has started to calm down for now, moves in the dollar against yen have also settled down.”
The U.S. benchmark 10-year Treasury yield is currently at 2.199%, after hitting a 10-month high of 2.302% earlier in the week.
For more details on Trump’s economic policies and the dollar’s nearly 14-peak grasp, this FSM News article is what you want.
As of writing, the US Dollar Index dipped by 0.13% to trade at 100.25.The greenback is testing at 100.60 with a resistance of 99.48 , with Bollinger bands showing still a strong bullish trend for the stock . Stochastic indicators are showing a flat line for the currency after a sharp rally in the previous days, due to the pause in surge .
In the previous article about the dollar, it had been said that should the currency push past Tuesday’s intraday high of 100.51, it will have reached a new peak last seen in April 2003.
The next day on November 16, the dollar indeed hit a high of 100.60—it’s 14-year peak . On Thursday however, the currency is trading with a heavier bias as its recent run is consolidated. The rally also paused due to waiting for additional developments, such as that of Yellen’s testimony and US key data. The US CPI figures today will be imperative especially after producer prices data stayed flat previously.
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