“The market. needed to digest both Yellen and Fischer’s comments and it is reacting in a way that is very consistent with an interest rate move”, said David Schiegoleit, managing director at U.S. Bank Private Client Reserve in Los Angeles.
Advertisement
Market watchers were waiting for Yellen to show her hand in an address to an annual gathering of central bankers in Jackson Hole, Wyoming.
The dollar pivoted higher Friday after Federal Reserve Vice Chairman Stanley Fischer said the central bank could possibly raise interest rates twice before the end of 2016, depending on the strength of economic data released in the coming months.
That report showed USA growth in the second quarter was slightly lower than previously thought, rising at a 1.1 percent annual rate.
Yellen, speaking at an worldwide gathering of central bankers and academics in Jackson Hole did not say when the USA central bank would raise borrowing costs, and investors remained skeptical that such a move was imminent.
Yellen told a gathering of central bankers from around the world in Jackson Hole, Wyoming, the United States economy was nearing the central bank’s goals of maximum employment and price stability but that future hikes should be “gradual”.
Speculation has grown that the bank could lift interest rates as early as next month, although most experts say that is unlikely and that December or February would be safer bets. After Yellen’s speech, traders cut their odds of a rate hike in September to 18 percent from 21 percent, and slightly raised the chances of a December hike to 43.1 percent from 41.4 percent, according to CME Group’s FedWatch tool. “I think that was the lynchpin that catapulted the dollar”.
Yellen’s remarks initially touched off rises early in the trading day.
The yield on the benchmark 10-year note was 1.544%, compared to 1.576% on Thursday and 1.561% before the speech.
“Chairwoman Yellen put a magnifying glass on next Friday’s jobs report”. She said current forecasts imply a 70 percent probability they will be between 0 percent and 3.75 percent at the end of 2017, and a 70 percent probability they will be between 0 percent and 4.5 percent at the end of 2018.
The dollar continued to climb after Fed Governor Jerome Powell said he would support a “cautious” approach to raising rates in an interview with Bloomberg. The Fed raised its fed funds rate target to between 0.25 and 0.5 per cent in December, its first hike in almost a decade, but has held off further increases this year due to a global growth slowdown, financial market volatility and tepid U.S. inflation data.
Advertisement
“For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets”, she said.
