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:
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:
In our latest podcast we explain why the dollar defies the doves
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