Fed Chair Janet Yellen gave little away yesterday as she spoke about the US economy at the World Affairs Council in Philadelphia. After much speculation as to whether Yellen would signal a rate rise in the coming months, investors were left disappointed from the lack of policy direction. Analysts interpreted this as there being little chance now of a rate rise in June and that a July hike would be entirely dependent on the incoming data until then as Yellen tried not to draw too many conclusions from last Friday’s weak payrolls data.
However, Yellen did give an upbeat assessment of the US economy, saying that she sees “good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones”.
The dollar fell slightly after Yellen’s speech as expectations of a June/July rate hike receded but was steady in Asian trading today. The greenback firmed against the yen as the focus now moves to the Bank of Japan which meets a day after the Fed’s meeting next week. The dollar edged up to 107.88 yen earlier today before easing slightly in late session.
The euro was flat against the dollar around 1.1365 dollars after briefly spiking up to a one-month high of 1.1392 yesterday. The single currency was supported by better-than-expected industrial production figures out of Germany today. Industrial output in Germany was up 0.8% month-on-month in April, a significant rebound from the 1.1% drop seen in the previous month and above estimates of 0.7%.
Sterling came off yesterday’s lows as it was boosted by two new polls overnight that gave a small lead to the ‘remain’ camp. This helped calm market fears after several opinion polls in recent days had been pointing to rising support for Brexit campaigners. The pound was back above 1.45 dollars in Asian trading today, up sharply from Monday’s 3-week low of 1.4351 dollars.
The best performing currency on Tuesday though was the Australian dollar which was lifted by the Reserve Bank of Australia’s not-so-dovish policy statement. As expected, the RBA kept its cash rate unchanged at 1.75% at its meeting today but the accompanying statement carried a more neutral tone, which dampened expectations of another cut in the near term following May’s surprise reduction.
The aussie rose to fresh one-month highs against the US dollar in late Asian session and was last up almost 1% at 0.7438.
The Canadian and New Zealand dollars were also bullish on Tuesday as both currencies continued to benefit from the stronger commodity prices. The kiwi was up 0.3% at 0.6938 versus the greenback, while the loonie was trading near 4-week highs at 1.2792 per US dollar.
Looking ahead to the rest of the day, Eurozone final GDP estimates for the first quarter will be the main data in the European session, while in the US session, labor costs and productivity will be watched in an otherwise quiet calendar day.
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