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US Dollar Pushes Higher as Yellen Weighs In

H.S. Borji
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US Dollar Pushes Higher as Yellen Weighs In

The US dollar advanced to a fresh 11-month high on Friday following comments from Federal Reserve Chair Janet Yellen that the central bank would exercise caution in raising interest rates.

The US dollar index, a broad performance gauge of the US dollar against a basket of currencies, rose 0.26 percent to 82.36. The index eased off an intraday high of 82.46, but is still ticking in at 11-month highs.

The weighted average of the US dollar’s performance is pacing for a weekly gain of 1.2 percent, having strengthened in four of the last five days.

The US dollar advanced for the fifth straight day against the Japanese yen, as the USDJPY climbed 0.08 percent to 103.92. The pair, which is trading at its highest level since early April, faces initial support at 103.64 and resistance at 104.01.

The dollar edged higher against the euro, as the EURUSD tumbled 0.3 percent to 1.3241. The technical picture shows initial support 1.3224 and resistance at 1.3299.

The dollar appreciated further against the Swiss franc, as the USDCHF climbed 0.25 percent to 0.9137. The pair, which is on pace for a weekly gain of 1.2 percent, is testing the initial resistance of 0.9137. On the downside, initial support is likely found at 0.9100.

In her first keynote address to the annual Jackson Hole Symposium, Yellen said the Federal Reserve was prepared to shift course on monetary policy should the evidence become clearer. This includes raising the benchmark interest rate sooner than expected or holding rates at record-lows for even longer.

The Fed maintained near-zero interest rates at July 29-30 Federal Open Market Committee policy meetings, and trimmed the pace of monthly bond-buying by another $10 billion. The central bank is expected to unwind record stimulus in its entirety by October.

Yellen’s speech focused a great deal on the employment situation, which reflected this year’s conference theme. Yellen emphasized that the labour market “has yet to fully recover,” and that the decline in unemployment since the 2009 financial recession “somewhat overstates the improvement in overall labour market conditions.”

Interestingly enough, the Bank of Canada released a report earlier this year that states just that. BOC analysts were concerned that the unemployment rate – the most commonly used barometer of the labour market’s performance – overstated the jobs recoveries of both the United States and Canada. According to BOC analysts Konrad Zmitrowicz and Mikael Khan, the US unemployment rate may have “significantly” overstated the jobs recovery over the 2009-2014 period.

The US unemployment rate has declined to 6.2 percent from a high of 10 percent in 2009. The labour market has added more than 200,000 nonfarm payrolls in each of the last six months, pushing up the 2014 monthly average to 230,000.

According to Yellen, the fact that the US labour market has yet to fully recovery after such impressive gains speaks to the extent of the damage caused by the financial recession.

Yellen’s remarks suggested she still favours accommodative policies to boost employment, but nevertheless acknowledged that efforts to contain inflation may be needed as wages rise more rapidly. At the same time, the Chairwoman cautioned that higher wages could result in higher participation rates, which would keep long-term unemployment contained. If the latter situation played out, a premature rate hike could prevent the labour market from fully recovering.

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