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Yellen surprises with hawkish talk – USD jumps

Fed Chair Janet Yellen  talked quite decisively about raising the rates in 2015. She  chose not to lean towards academic talk in her lecture but rather talk business,  sounding  more hawkish than her previous dovish tone just one week ago.

The result, although on thin liquidity, is quite clear: a stronger US dollar: EUR/USD fell over 50 pips to 1.1170 and other currencies followed.

The Fed refrained from hiking  also due some turmoil in financial markets. However, Yellen said that it does not significantly affect the policy path. This path means rate hikes this year, and this is based on fading economic headwinds and ongoing and steady improvement in the  economic situation.

While the pace of the rate hikes will be  gradual, as the Fed already noted, she also said something that wasn’t heard before: that holding rates  near zero for too long means risk to an abrupt tightening later. This plays along the lines heard from Bill Gross: to get on with it already.

She is a hike this year as “likely appropriate”:

It will likely be appropriate to raise the target range of the federal funds rate sometime later this year

On inflation,  the Fed lacked confidence, but on the other hand, the impact of oil was transitory. Yellen reiterated  the transitory nature rather than the lack of confidence.

This is how it looks on EUR/USD:

EURUSD down on Yellen September 25 2015 hawkish Fed rate hike soon

For AUD/USD, this hawkishness from Chair Yellen when only markets in Sydney are open meant a slide of the pair below 0.70 once again, erasing the previous climb:

AUDUSD September 25 2015 down on Yellen Aussie dollar USD technical chart

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.