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Yellen comments push back rate hike expectations

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The US dollar experienced volatility during Federal Reserve Chair Janet Yellen’s testimony on Tuesday in Washington DC. Yellen spoke before the Senate Banking Committee on the Semiannual Monetary Policy Report.

Her initial comments caused the dollar to rally across the board. Investors interpreted Yellen’s testimony overall as likely indicating a later date for the beginning of the Fed’s rate hike cycle. By the end of her two-hour appearance before the Senate Banking Committee, short-term rate futures contracts showed traders had shifted their expectations of an initial interest rate increase. Until very recently, some analysts predicted that the Fed would begin tightening policy and raising rates by June of this year. These expectations have been pushed back, with some even expecting the first rate much later in the year, in October.

What raised more caution amongst investors were Yellen’s comments that the Federal Reserve is preparing to consider interest rate hikes “on a meeting-by-meeting basis. She noted that flexibility was needed on the timing of the rate hikes. The Fed has held its benchmark rate near zero for more than six years in an effort to boost economic growth and employment.

Overall, the Fed Chair did highlight that the US economic was improving.

“The employment situation in the United States has been improving on many dimensions,” remarked Yellen. Spending and production had increased at a “solid rate,” she added, and should remain “strong enough to keep bringing unemployment down.”

However, Yellen also struck a cautious note about the US economy’s performance, commenting that “too many Americans remain unemployed and that wage growth is still sluggish, while inflation remains well below the Fed’s longer-run objective. “

During the beginning of Yellen’s speech, the dollar rallied to a high of 119.84 yen before falling back down below the key 119.00 level.

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