Yellen is cautiously optimistic – USD wobbles

Yellen’s prepared statement is cautiously optimistic: she says a rate hike could be appropriate relatively soon. She notes the progress the economy has made but still sees scope for more job gains. The Fed Chair also  acknowledges the rise in wages. On inflation, Yellen sees an advance towards the  goals of the Federal Reserve, a relatively subdue wording, just like inflation. There may not be too many rate hikes later in the pipeline.

The USD is sliding in the immediate aftermath, but well within ranges. Update: after the initial slide, the greenback reasserts itself and gains some ground.

She also talks about global growth and inflation returning to normal, but the horizon is years. There is no sense of urgency. She says that the lower growth rate among minorities is “troubling”. It seems like a warning about inequality.

Update:  Mixed bulk of US data – USD sees glass half full

Fed Chair  Janet Yellen testifies on Capitol Hill at 15:00 GMT but her prepared remarks are released two hours beforehand.  There are two interesting points here. First, cementing the December rate hike and second, any reaction to the shock election of Donald Trump and the potential fiscal stimulus attached.

The US dollar was taking a second breather from its gains after breaking further ground  yesterday, with new highs in USD/JPY and new lows in EUR/USD.

The last Non-Farm Payrolls report was good: another solid gain in jobs and also a heating up in wages: 2.8% y/y. Other figures have been good enough to support a second rate hike in this cycle, coming one year after the first one: in December. While the  Trump’s Triumph was a big surprise, the relative financial stability that followed have allowed for seeing higher expectations. There is a 90% chance for a rate hike according to bond markets.

Going forward, the Fed’s policy will depend on the Donald and the fiscal stimulus. If tax cuts and infrastructure spending go wild, the Fed could raise rates more quickly.

We will shortly receive a bulk of data for the US economy: CPI, building permits, housing starts, jobless claims and the Philly Fed Index.

More: Why the dollar is rising on the Donald