Dollar Rises After Yellen Hike Comments

The Fed Chair is due to appear for a second day of grilling

The U.S. dollar gained against most major pairs on Tuesday. The testimony of U.S. Federal Reserve Chair Janet Yellen before the Senate Banking Committee drove the greenback to a four week high but the lack of commitment to a timeline and optimistic view of the U.S. economy boosted the stock market. Yellen was hawkish on the U.S. economy and mentioned it would be unwise to wait for too long before hiking rates. Fed member Jeffery Lacker issued comments on the same subject as investors that expect the Fed to act slowly could be in for a surprise. The possibility of multiple U.S. interest rate hikes in 2017 will continue to drive the currency higher but the more the Fed fails to heed their own advise on hiking sooner rather than later the more downside risks there are for the USD.

After Yellen’ optimism about the U.S. economy the data on Wednesday has a chance to validate her view. U.S. retail sales and inflation data will be published on Wednesday, February 15 at 8:30 am EST (1:30 pm GMT). Inflation is expected to keep advancing at the same pace (0.2 percent) but core retail sales are expected to improve on last month’ miss. Sales excluding autos are expected to have gained 0.4 percent in January.

Fed Chair Yellen will testify before the House Financial Services Committee on Wednesday, February 15 at 10:00 am EST (3pm GMT). There will be similar questions to those she faced in front of the Senate with Regulation and the economy the main topics. Market watchers will be closely following her testimony for further clues on the timing of the rate hikes she says the central bank must make sooner rather than later. Later in the day, the Energy Information Administration (EIA) will publish the U.S. crude inventories at 10:30 am EST (3:30 pm GMT).

The EUR/USD lost 0.189 percent in the last 24 hours. The single currency is trading at 1.0576 after Fed Chair Yellen faced questions from the Senate Banking Committee. Her comments on the possible pace of rate hikes gave the USD a boost even if what she said is nothing new. Its a variant from the same data dependant template the Fed has been touting for the past two years. With the announced retirement of Fed member Tarullo it will be interesting to see how the independent central bank manages to navigate the heavy politicized waters for the next four years and how much it is reshaped by the current Republican administration.

The pair broke through the 1.06 price level as the possibility of up to four rate hikes in 2017 has gone up after Yellen’ testimony. The USD was higher versus major pairs and will be awaiting the data releases on Wednesday to validate Yellen’ assessment on the U.S. economy.

The price of oil rose 0.56 percent on Tuesday’ trading session. West Texas is trading at $52.99 in a range ahead of the release of the U.S. crude stocks. The effects of the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement have been felt around the world as prices have remain around the $50 range, but are still vulnerable from higher production levels from nations that were not part of the agreement like the United States and Canada. Production in both nations is expected to ramp up to take advantage of less competition from OPEC and current crude prices.

The USD/JPY gained 0.495 percent in the last 24 hours. The price of the pair trades at 114.24 after the visit from Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump was able to iron out some of the differences regarding trade and cooperation. The current is now trading near daily highs after U.S. interest rates are expected to head higher at a faster pace. Chair Yellen still said the hikes would be gradual, but with her comments and other Fed members the market now expects 4 rate hikes which the first one coming as soon as March.

Market events to watch this week:

Wednesday, February 15
4:30am GBP Average Earnings Index 3m/y
4:30am GBP Claimant Count Change
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:00am USD Fed Chair Yellen Testifies
10:30am USD Crude Oil Inventories
7:30pm AUD Employment Change
Thursday, February 16
8:30am USD Building Permits
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
4:45pm NZD Retail Sales q/q
Friday, February 17
4:30am GBP Retail Sales m/m

*All times EST