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US Dollar Falls Despite Status Quo Fed Speeches

US Dollar Falls Despite Status Quo Fed Speeches

Varun Jaitly,

US Dollar Falls Despite Status Quo Fed Speeches

The US Dollar fell as Fed rate hike bets moderated despite status-quo comments from presidents of the central bank’s Atlanta and Boston branches.

Talking Points:

  • Fed speakers Rosengren and Lockhart believe dual mandate close to being achieved
  • Both central bank speakers see inflation hitting Fed’s 2 percent target in 2017-2018
  • This Thursday and Friday will feature comments from Fed members and Chair Yellen

Check out our analysts 1Q 2017 market forecasts on the DailyFX Trading Guides page

The US Dollar ended the day lower by half a percent against a backdrop of moderating Fed rate hike speculation despite status-quo comments from presidents of the central bank’s Atlanta and Boston branches. The greenback fell alongside benchmark 10-year US Treasury bond yields as well as a gauge of the priced-in policy outlook reflected in Fed Funds futures.

Eric Rosengren of the Boston Fed and Dennis Lockhart of the Atlanta outpost appeared to see the target 2 percent inflation rate closely within reach, making a case for near-fulfillment of the central bank’s dual mandate. While mildly hawkish, the rhetoric largely echoed minutes from December’s FOMC meeting published last week.

Dennis Lockhart (Atlanta Fed):

  • Fed is quite close to achieving its dual mandate
  • Expects gradual pace of rate increases
  • Time for Fed to shift to more of a support role
  • Sees rising inflation moving to 2% in 2017 or 2018
  • Sees economy well positioned for moderate growth
  • Sees US GDP near 2% over next three years
  • Says it’s too early to estimate fiscal policy effects
  • Unclear economy positioned for markedly higher growth
  • Lockhart did not factor fiscal policy into his forecast
  • Says secular decline of business dynamism is a reality

Eric Rosengren (Boston Fed):

  • Says Fed is already running the economy “a bit hot”
  • Fiscal stimulus could influence Fed rate-hike path
  • A positive surprise could see inflation overshoot
  • Sees upside surprised possible from global growth
  • Urges Fed to take up balance sheet timing debate
  • Gradual yet somewhat more regular hikes are warranted
  • Central bank will continue to normalize policy gradually
  • Sees inflation goal of 2% being reached by end of 2017
  • Employment part of Fed mandate has been largely fulfilled
  • It is appropriate to examine reducing balance sheet, US economy is in better shape than many trading partners
  • No one is interested in a trade war, it is appropriate to ensure trade deals are fair
  • Expect Fed to let balance sheet gradually shrink, but don’t expect the balance sheet change to have a huge rate impact
  • Exact rate hike timing must depend on incoming data
  • Commercial real estate certainly something to watch
  • Fed is not targeting the stock market

The rest of the week features a number of central bank commentators, with most speaking on Thursday and Friday.

Thursday 01/12

13:30 GMT: Philadelphia Fed’s Harker

13:30 GMT: Chicago Fed’s Evans

17:30 GMT: Atlanta Fed’s Lockhart

18:15 GMT: St. Louis Fed’s Bullard

18:45 GMT: Dallas Fed’s Kaplan

Friday 01/13

00:00 GMT: Fed Chair Yellen

14:30 GMT: Philadelphia Fed’s Harker

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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