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US Dollar Drops as Fed Chair Yellen Highlights Fiscal Uncertainty

US Dollar Drops as Fed Chair Yellen Highlights Fiscal Uncertainty

Daniel Dubrovsky, Strategist

Talking Points:

  • The US Dollar fell as Fed Chair Yellen downplayed the 2017 rate hike outlook
  • She mentioned that it is unclear as to what potential fiscal policy means for the outlook
  • Yellen added that gradual rate hikes are prudent and they are not behind the yield curve

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The US Dollar lost ground against its major counterparts after Fed Chair Janet Yellen poured a bit of cold water on rate hike speculation, saying that growth is unlikely to markedly pick up in the near term and citing weak foreign demand as a restraint on the US economy. She added that the impact of fiscal policy on the outlookremains unclear.

Yellen went on to point out that the Fed is not behind the curve on tightening, reiterating that gradual rate hikes are prudent. She highlighted that the jobless rate is close to estimates of the long-run “full employment” level and that the central bank is “closing in” on its 2 percent inflation target.

In a speech made yestreday, Yellen made the case for delivering a few rate hikes this year. The markets appeared to interpret this as broadly hawkish and the remarks helped drive the greenback upward.

Additional comments from Janet Yellen:

  • Capital spending to likely strengthen modestly in 2017
  • Fed has made considerable progress toward its two goals
  • Expect some further strengthening in the labor market
  • Signs of overheating in broader economy are scarce
  • Unlikely labor market could rapidly overheat
  • Sees inflation rising to 2% over next couple of years
  • Unwise to run economy markedly, persistently hot

Chart compiled in Tradingview

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