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    Asian Session – Dollar slides below 112 yen on dovish Yellen

    The US dollar slipped to fresh 4-month lows following Fed Chair Janet Yellen’s testimony yesterday where she warned of downside risks to the US economy. Speaking before Congress, Yellen stuck to the Fed’s current policy path but signalled that rates might have to rise at a more gradual pace than expected, saying that the Fed is not on a “preset course”.

    She noted that financial conditions in the US have become less supportive of growth and while the economy is expected to continue growing at a moderate pace, the outlook could deteriorate if the current developments prove persistent.

    The dollar lost ground against most major currencies as traders lowered their expectations of a rate hike by the Fed anytime soon. The greenback dropped below 112 yen for the first time since October 2014 and was last trading at 111.30 yen.

    The euro was testing the 1.13 handle again and was trading around 1.1295 dollars in late Asian session. The pound was weaker though, dropping to 1.4487 dollars in late Asian trading.

    US stocks had a muted response to Yellen’s remarks and closed slightly lower after an initial boost. Technology stocks were the exception, with the Nasdaq closing 0.4% higher. In Asia, markets are closed in Japan and China but shares fell across much of the region apart from Australia, where shares ended the day up.

    The Australian dollar was also firmer but off its highs. The aussie was last trading at 0.7095 versus the dollar. Meanwhile, the New Zealand dollar got a lift from an improvement in the PMI business index in January. The kiwi peaked at 0.6733 earlier in Asian session before retreating to around 0.6661 against the greenback.

    Gold climbed to nine-month highs as investors continued to seek shelter in safe-haven assets. The precious metal was last up at $1210 an ounce. US treasuries also benefited from Yellen’s dovish remarks with 10-year yields dropping to one-year lows.

    Crude oil fell though on Thursday as another rise in US inventories weighed on prices. WTI futures were down over 2% at $26.85 a barrel – not far from the 12½-year lows set in January.

    Sweden’s central bank, the Riksbank, decided to cut its repo rate further into negative, reducing it by 15bps to -0.50% today. The central bank reduced its inflation forecast for the next two years and said it is prepared to intervene in the foreign exchange market to prevent the krona from appreciating. The euro jumped against the Swedish krona after the announcement, rising to 9.61 krona before easing to 9.58.

    Coming up later today, Janet Yellen is expected to talk more on monetary policy as she testifies for a second day before Congress.

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