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    European Session – Euro reverses to below $1.12 after Yellen’s written testimony

    Markets were more stable today with risk appetite returning in Asia and Europe. This led to the yen giving back some gains made from safe haven flows yesterday.

    The dollar recovered from mid-114 yen to rise just above the key 115 level in European trading.

    The euro fell back after testing the 1.1300 level against the dollar, while sterling rose above 1.4500 versus the greenback only to reverse lower following the release of Federal Reserve Chair Janet Yellen’s prepared semi-annual testimony to the House Financial Services Committee in the US Congress. She will be making her live appearance before the panel at 15:00 GMT.

    There was some market action immediately after the release of Yellen’s written testimony, with most major currency pairs reversing earlier moves. The pound dropped back below 1.45 versus the dollar and the euro also fell against the greenback to the lower 1.1200s.

    Oil fell sharply, breaking below $28 a barrel. The oil-linked Canadian dollar was impacted by this and resulted in the USD/CAD pair bouncing higher to 1.3950 from 1.3820.

    Gold, a safe haven, benefitted from a mostly dovish Yellen testimony and rallied from $1181 to $1193.

    Yellen’s written testimony mostly gave the impression that the Fed’s wait-and-see mode continues. The market interpreted the report as being along with expectations for no rate hike in March. She did point out though that the Fed’s monetary policy was not on a preset course. She said the Fed would probably start hiking when it was certain that inflation would return to the Fed’s 2% inflation target. She indicated that the dollar would have to stop rising and oil would have to stop falling.

    All eyes will now turn to Janet Yellen’s question and answer session in front of the US House Financial Services panel.

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