Yellen finds her inner hawk
The fed chair, Janet Yellen surprised me and many others yesterday when she made it abundantly clear that March is indeed a ‘live’ meeting in terms of further monetary tightening so the dollar got a boost across the board, but most notably versus the JPY and the EUR.
The fact that she opened the door for more than the current consensus of 3 envisaged rate hikes on the ‘dot plot’ plan was significant I think. That coupled with a tacit admission that perhaps the Fed needs to get in front of the curve or risk having to move more aggressively in the future; drastic action that might derail the economy; was what helped the dollar too.
However, and despite lifting through 101.00 again the USD index hasn’t made that much headway and according to reports the USDJPY is running into Japanese exporter offers above 114.50 in overnight trading.
Gold, which also slipped on her comments back close to $1220, also rose back to near $1230 after the European close. However, the price has edged backwards a bit to around $1225 as at 6am this morning. Overall I am a little underwhelmed by the move here and would have expected more traction to the downside.
So along with the USDJPY it was the EURUSD that saw the most action reversing all its morning gains in a hurry yesterday afternoon, but the likes of the AUD and the CAD did rebound quite quickly from their initial losses and the GBPUSD didn’t lose much more than it had done already following the weaker than expected UK inflation data we had seen earlier in the morning.
Thus the GBPUSD has so far failed to break down below 1.2440 despite a couple of attempts at doing so and even after Yellen’s dollar positive comments that level still held.
There were long stops in place below that point yesterday and I was surprised that they weren’t tripped to be honest, but looking at the technical picture on that I can see why. 1.2442 did define the top of the daily cloud chart and so clearly that was why it held steady I think.
Turning back to the dollar, the only thing that’s holding the dollar back from really charging higher in my view is market trepidation on any anti-dollar rhetoric from over the pond.
The market needs to continue to ignore that rhetoric as indeed the market is meant to do. The market should always decide where the currency goes. That’s after all what the G20 would say when they advocate against any of their participants trying to manipulate their own currencies!
I therefore think that the market will continue to move the dollar slowly and steadily higher so as to try and deflect any undue attention.
Beyond the dollar, the EUR is continuing to suffer across the board and its that weakness that’s standing in the way of further GBPUSD downside traction right now because EURGBP is under a degree of pressure and technically I am still concerned about a potential breakdown below 0.8450.