Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Dollar U-Turns On Hawkish Yellen

By Kathy LienForexJun 15, 2017 08:27
au.investing.com/analysis/dollar-u-turns-on-hawkish-yellen-200194735
Dollar U-Turns On Hawkish Yellen
By Kathy Lien   |  Jun 15, 2017 08:27
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
EUR/USD
+0.09%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GBP/USD
+0.11%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/JPY
-0.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CHF
+0.07%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AUD/USD
-0.21%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CAD
+0.05%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

The Federal Reserve raised interest rates by 25bp Wednesday and Fed Chair Janet Yellen’s optimism plus hawkishness caught the market by complete surprise. Traders leaned heavily into short dollar positions after the morning’s weak consumer spending and inflation reports. Economists had been looking for retail-sales growth to stagnate but instead it contracted by -0.3%, the largest decline since January 2016. Demand for products outside of auto and gas also fell short of expectations last month. Consumer prices turned negative, driving the year-over-year inflation rate down to 1.9% from 2.2%. After these reports, investors were sure that the Fed would drop its plans to raise interest rates again this year expecting mostly dovish comments from Janet Yellen. Instead, the complete opposite happened. The Fed maintained its view for a third hike in 2017 and aside from acknowledging the drop in inflation, which she downplayed by attributing to one-off factors, everything Yellen said was hawkish. She put on a brave face, talked up the improvements in the labor market and economy and shared the central bank’s plans to reduce its balance sheet by unwinding asset purchases. The dollar traded sharply higher in response. The Fed also raised its GDP forecasts, lowered its unemployment rate estimates and cut its projection for inflation. However the lack of follow through after Yellen’s testimony tells us that investors don’t believe her. The proof is in the data, which is telling a very different story. Nonetheless, with the Fed looking beyond the recent weakness and seeing the need for another hike this year, losses in the dollar should be limited. Buyers are likely to swoop into USD/JPY near 109.25 with sellers coming into EUR/USD from 1.1215 to 1.1250.

The Swiss National Bank and Bank of England are up next. No changes are expected from either central bank. Recent Swiss data has been mixed with stronger GDP and CPI growth offset by lower retail sales and manufacturing activity. So the central bank will most likely reiterate its desire to see the Franc lower. As for the BoE, having just updated its economic projections, no major breakthroughs are expected this month. Although the following table shows improvements in spending, jobs and inflation, Governor Carney is worried about low wage growth and the impact on household demand. Combined with the latest political uncertainty, there’s very little reason for the BoE to express fresh optimism or alter its guidance. If Kristin Forbes continues her dissent in favor of a hike, we may see a shallow rally in GBP. If she votes to keep policy unchanged, we will see a sharper decline and if another member joins her tightening bias, GBP/USD could hit 1.2850. Retail sales are due for release ahead of the rate decision and we are looking for a pullback after the strong rise in April.

GBP Data Points
GBP Data Points

The Australian and New Zealand dollars were in play Wednesday evening. Both currencies performed very well on Wednesday and only gave back part of their gains post FOMC. Of the 2, we believe that the New Zealand dollar will outperform with GDP growth expected to rise strongly in the first quarter. Retail sales and trade have been significantly better, translating to solid growth in the first 3 months of the year. Australian labor-market conditions on the other hand should weaken with job growth slowing in the services and manufacturing sectors according to the latest PMI reports. If we are right on both reports, AUD/NZD could sink to 1.04. USD/CAD rebounded off its lows Wednesday on the back of lower oil prices as crude was crushed by the inventory report. But even with this recovery, the downtrend remains intact.

Dollar U-Turns On Hawkish Yellen
 

Related Articles

ING Economic and Financial Analysis
Bank Of England Exercises Its Financial Stability Remit By ING Economic and Financial Analysis - Sep 29, 2022 1

Events in the UK yesterday marked the first time this stagflationary macro environment risked evolving into a financial crisis. Fortunately, the Bank of England intervened...

Kenny Fisher
EUR/USD Near Parity, Powell Speech Next By Kenny Fisher - Aug 26, 2022

The euro has posted gains today and briefly punched above the symbolic parity line. In the North American session, EUR/USD is trading at 0.9978, up 0.11%.German Business Confidence...

Dollar U-Turns On Hawkish Yellen

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email