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The unrelenting dollar

Fed Chair Yellen managed to tread a neutral path in her prepared testimony yesterday, but the overall tone of her Q&A reinforced the markets notion of higher rates to come. The fact that she said interest rate hikes could come ‘relatively soon’ was seen as endorsing the market’s expectation that rates will be moved higher next month. Bond yields ticked higher as a result, giving some support to the dollar and allowing the dollar index to push ahead for the ninth consecutive session. The dollar index is now 3.5% higher versus pre-election levels, with USDJPY having smashed through the 110 level, back to levels last seen early June. The other point of note on Thursday was sterling, which failed to break above the 1.25 level on a sustained basis after stronger than expected retail sales figures, although it continues to hold its ground and has been slowly and consistently outperforming the euro in the post-election environment.

For today, we have inflation data in Canada at 13:30 GMT, with ECB President Draghi due to speak early on, with some Fed speakers schedule for later today. Overall though, given the week we’ve had, end of week flows are the bigger risk, especially some profit taking on dollar long after what has been a stellar performance.

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