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US dollar falls on Yellen testimony

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US dollar falls on Yellen testimony

The US dollar was back below 81.00 against a basket of its major peers as market participants continue to weigh the latest testimony from Janet Yellen. The next Chairman of the Federal Reserve reaffirmed her commitment to record stimulus in a testimony to the Senate Banking Committee, where she explained unemployment was still too high to warrant an asset taper.

“Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high,” Yellen said in her testimony. “At the same time, inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to do so for some time.”

The Federal Reserve has been purchasing $45 billion in Treasury Securities and $40 billion in mortgage-backed securities since September 2012. Since November 2008 the Fed has purchased nearly $4 trillion in securities in an effort to promote borrowing and stimulate economic growth.

The US dollar fell hard in Europe. The British pound jumped 40 pips to regain 1.61. The pound was supported this week after fewer Britons applied for unemployment benefits and the Bank of England increased its growth forecast this year and next. The euro advanced 27 pips to 1.3483 US amid weak inflation data. Consumer inflation accelerated at the slowest pace in four years in October, reaffirming last month’s initial estimate.

The US dollar backtracked against the commodity peers. The greenback lost 17 pips against the Canadian dollar, consolidating around the 1.0450 region. The Australian dollar jumped 45 pips to 0.958 US amid bearish sentiment toward the greenback.

The dollar continued its rally against the Japanese yen after Tokyo announced it would intervene in the currency markets if needed. Japanese Finance Minister Taro Aso said currency intervention would be needed to address excess volatility in the markets. The USDJPY gained 15 pips to 100.25. The pair has been capped below the psychological 100 level since September 11.

Economic data from the United States will make headlines next week, led by manufacturing PMI, consumer inflation and retail sales. Several Fed officials will also chime in about the direction of the nation’s monetary policy.

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