FX round-up: US dollar catapulted north after Yellen's Wyoming words
By Andrew Schonberg
Date: Friday 26 Aug 2016
(ShareCast News) - The US dollar was catapulted north on most crosses after US Federal Reserve chair Janet Yellen said the case for an interest-rate hike had strengthened in recent months.
Taking the Fed soapbox to Jackson Hole, Wyoming, on Friday, Yellen cautioned that the outlook was far from certain. The Fed's monetary policy was not on a pre-set course, she added.
Traders swooped on her headline comments and the dollar zipped higher. At about 17:01 BST, sterling was down 0.17% to $1.3169, while the dollar-spot index was up 0.36% to $133.315.
The greenback also promptly bounced out of negative territory versus the commodity currencies of Canada, Australia and New Zealand. On Japan's issue it was up 0.79% to 101.32 yen.
"Yellen may have said that the case for rate hikes has strengthened in recent months, but the rest of her speech was overwhelmingly dovish," said Monex Europe's Ranko Berich.
He took the view that Yellen was "entirely comfortable with taking hikes nice and slowly," adding many would wait to see what actually transpired, given the recent spate of Fed hawks on the speaking circuit.
In fact, the dollar's initial reaction on the euro, loonie, aussie, kiwi and yen was to dip, and thereafter climb higher.
"The whipsaw movement in dollar currency pairs ... was exacerbated by interviews from other Fed members which displayed a divided set of opinions," said CMC Markets' Jasper Lawler.
Lawler added that Yellen's speech had initially "set a fire under commodities." At about 17:01 BST, gold was up 0.11% to $1326.1 an ounce, having withdrawn from its post-Jackson hole spike that nudged about $1343.5 an ounce.
Crude oil plotted a similar course, with West Texas Intermediate down 0.11% to $47.28 a barrel and well below its peak of $48.25 a barrel soon after Yellen spoke.
"While interest rate remain low and stock markets have high valuations, gold and silver remain an attractive hedging option," said Lawler.
OANDA's Craig Erlam said Yellen's speech had not really offered up much in the way of surprise. "But, it did confirm one thing, there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board," he added.
"I think we'll see another hike this year, possibly even as early as September. The only issue with September is that prior to the release of the text, markets had all-but priced this out and it would take something substantial to get them on board prior to the meeting. December may make more sense followed by another in the first half of next year," Erlam said.
Pantheon Macroeconomics's Ian Shepherdson, however, noted Yellen's words were not a promise of monetary-policy action in September. He thought December more likely.
Finally, sterling turned in solid performances on most of its major crosses. At about 17:01 BST, it was up 0.45% to €0.8900 and up 0.79% to 101.32 yen.
Both sterling and the dollar fluttered at the time of gross domestic product data, respectively at 09:00 BST and 13:30 BST, but the market was always more focused on Jackson Hole at 15:00 BST.
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