Yellen with a neutral message but USD starts to fight back

13 January, 2017

USD was taking damage from the Wednesday Donald Trump specch until yesterday evening. Lack of details on economic and fiscal agenda at the first press conference of the president-elect caused a correction on equities boosted since the US elections by the so-called ’Trump trade’. USD was another victim. The weakening US dollar sent some of the major currencies to interesting levels and in fact it seems that the turning point on the yesterday broad negative USD move had to do more with technical levels rather than economic events.

114 proved to be a strong support in case of USDJPY, but notice that the Antipodean currencies are not letting go of the gains that easily. 

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 The performance of major currencies vs. USD today. The dollar index which is a weighted average of some of the world’s leading USD currency pairs is stable today which is a big change vs. yesterday; source: Bloomberg

The abundant Fedspeak in the second half of the day yesterday could be read as somewhat hawkish. Here’s what the Fed chairwoman added around midnight. She was addressing teachers so there was actually little for the markets to digest as she focused on historical summary of Fed performance, economic inequality (as another long term obstacle to growth apart from pdoructivity), gender gap and so on:

Fed policy dwarfed by factors like productivity
Fed is focused on low unemployment as well as low and stable inflation
labor market is generally strong and wage growth is picking up
there are no short-term obstacles to the US economy

So no reference to current monetary policy and whether she can imagine more than 3 rate hikes coming in 2017. What is interesting is that she spelled the importance of Dodd-Frank bank regulations (introduced during the global financial crisis to prevent further shjocks of this sort). One of Donald Trump’s pledges is to scrap these rules which in Yellen’s view are a must, as biggest financial institutions should have higher standards requirements. This may remind the markets that Yellen’s term lasts until early 2018 and that during the presidential campaign Trump used strong words to describe how he sees the current Fed governor’s performance. A replacement by the president for someone more hawkish is thus likely.

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