Dollar Pares Drop Before Yellen's Speech and Confidence Report

  • TD says anticipation of speech supporting `rudderless' dollar
  • We're bearish dollar for now, bullish longer-term: Macquarie

What Will Fed's Yellen Say About Economic Growth?

A gauge of the dollar pared its biggest one-day decline in more than a week as the market awaited a speech by Federal Reserve Chair Janet Yellen that may provide more clarity about how she sees the economy.

The U.S currency gained versus half of its 16 major peers before a report on Tuesday which economists forecast will show consumer confidence improved in March. Bloomberg’s Dollar Spot Index dropped on Monday after San Francisco Fed President John Williams said the economy is vulnerable to global developments. Fellow policy makers James Bullard and Patrick Harker signaled this month U.S. interest rates may rise as soon as April.

“We are seeing a modest unwind of some of the dollar weakness the market saw over the holiday period ahead of Yellen’s speech,” said Ned Rumpeltin, the European head of currency strategy at Toronto Dominion Bank in London. “With the Fed in a wait-and-see mode, the dollar is left rudderless for the time being. Today’s comments from Yellen could certainly give it a directional push.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed as of 7:22 a.m. New York time, after sliding 0.4 percent on Monday when it snapped a six-day rally, its longest since Jan. 20.

Rising Confidence

The Conference Board’s consumer-confidence index rose to 94 this month from 92.2 in February, according to the median estimate of economists surveyed by Bloomberg before a report later Tuesday. Last month’s reading was the weakest since July.

There’s now a 73 percent chance the Fed will raise rates this year, according to data compiled by Bloomberg based on fed fund futures. While that’s lower than the 80 percent odds before this month’s rate decision, it’s up from 57 percent at the end of January. The Fed left borrowing costs unchanged March 16 and lowered the pace of anticipated hikes because of the deteriorating global outlook.

Official Voices

St. Louis Fed President Bullard said on March 23 the central bank should consider raising rates in April. Philadelphia Fed President Harker said last week the U.S. economy is resilient, and that he’d support a quarter-point increase if that continued.

“I’m still bearish on the U.S. dollar for the next few months, but I’m certainly bullish over the longer term,” said Gareth Berry, a foreign-exchange strategist at Macquarie Bank Ltd. in Singapore. “It will be hard for the Fed to ignore the steadily improving U.S. economy, and ultimately that will push them into a rate hike later this year.”

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