The dollar bounced across the board yesterday after Fed's Lockhart reiterated Fed's commitment to hiking rates later in the year (with June seemingly still in play). USD and UST yields went up in tandem suggesting that the message was somewhat more hawkish relative to expectations.
Today we will get to hear from Chair Yellen. Her speech could differ from last week's press conference given that last Wednesday Yellen was presenting the view of the FOMC as a whole, which seems quite divided on the timing of stimulus removal.
Today, Yellen will discuss her own view on how Fed policy should evolve from here. Of particular interest would be comments on the timing of future rate hikes and the impact from strong dollar. Vice Chair Fisher was quite vague on the timing of the first hike but less concerned about USD on Monday. A similar message from Yellen today could see the dollar struggling to extend its gains.
We suspect that Yellen will continue to stress the data-dependent nature of its reaction function while offering little new information compared to last week’s FOMC statement in today’s speech. Despite yesterday’s rally the Fed’s nominal trade-weighted index looks set for its first weekly decline since early February.
Market positioning should continue to drive the USD with the short squeeze in foreign currencies likely to accelerate in thin market conditions ahead of Easter.
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