Fed Chair Has Valentine’s Day Date with Congress

Yellen’s Testimony to Offer Clues on US Interest Rates

The dollar started the week mixed against majors as the market awaits Fed Chair Janet Yellen’s testimony before Senate Banking Committee on Tuesday, February 14 at 10:00 am EST (3pm GMT). Since December when the Fed raised interest rates by 25 basis points, Chair Yellen has not featured prominently before markets. Her two day testimony in Washington, first before the Senate and on Wednesday facing house of representatives will be closely monitored in search for further insight on American monetary policy.

The CME’s FedWatch tool using Fed funds future prices is showing a higher than 80 percent probability rates will remain unchanged when the Fed finishes its monetary policy meeting in March 15. Words from Yellen could put a March rate hike in play, although various analysts have said that is unlikely given the lack of strong economic indictors that would warrant such a move. Given the Republican majority that now includes the President Chair Yellen will face a tougher time as she fields questions on Fed independence that could make markets anxious.

Two of the reasons that the dollar had a strong finish in 2016 was the December rate hike and the promise of Donald Trump to use fiscal stimulus and infrastructure spending to boost economic growth. During the first weeks of this administration anti-trade and immigration reforms have dominated the number of executive orders and attention from the President. Last week there are signs that could change with once again the pro-growth agenda getting mentions. It is no secret that Trump wants to change the way the Fed operates and given the resignation of members such as Daniel Tarullo, one of the toughest regulators on the Fed board, he might get a chance to remake the Fed sooner rather than later. Investors will be looking for how Chair Yellen addresses questions targeting changes in financial regulation that include the future of the Fed.

The EUR/USD lost 0.35 percent on Monday. The single pair is trading at 1.0598 after U.S. President Trump eased on his combative rhetoric and had a productive weekend with the Prime Minister of Japan. A meeting with the Canadian Prime Minister Justin Trudeau also showed a more collaborative side of the Republican president. The market is awaiting the testimony of Fed Chair Janet Yellen on Tuesday and Wednesday. Inflation data and retail sales will also be released this week that could further cement the strength of the dollar versus the euro. Political risk has impaired the single currency as more anti-union political parties continue to climb in the polls, particularly in France.

West Texas is trading at $52.70 despite the Organization of the Petroleum Exporting Countries (OPEC) reporting an unprecedented success of its production cut agreement. Members and non-members have complied which is an achievement in itself given the antagonistic postures of some of the nations. The black stuff has lost 1.71 percent in the first trading session of the week as U.S. producers have ramped up taking advantage of higher prices and the cut agreement from OPEC.

Market events to watch this week:

Tuesday, February 14
2:00am EUR German Prelim GDP q/q
4:30am GBP CPI y/y
8:30am USD PPI m/m
10:00am USD Fed Chair Yellen Speaks
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