Hawkish Fed Talk Refuels Dollar Rally; March Rate Hike Odds Rise

Updated on
  • Dollar reverses drop, climbs to monthly high on Yellen remarks
  • Euro falls to one-month low, may head toward 1.0454 next

The Big Takeaways From Janet Yellen's Testimony

Federal Reserve Chair Janet Yellen’s comments that every central bank meeting is “live” for a possible rate hike and that waiting too long to remove accommodation would be “unwise” added fresh fuel to a dollar rally that’s been gaining traction for the past week.

Yellen’s remarks in Senate testimony were the trigger point for a market that may have been short dollars, a trader in London said, while Amherst Pierpont’s Stephen Stanley described them as “easily the most hawkish message” that she has delivered as Fed chair. The dollar rose against most G-10 peers, with the Bloomberg dollar index gaining as much as 0.4 percent, reversing a shallow overnight drop. Dollar-yen rose to 114.50, its highest since Jan. 30.

The greenback was supported by the 10-year Treasury yield, which rose to as high as 2.5 percent after trading under 2.43 percent at the start of the day, as investors boosted the probability of a March rate increase to about 34 percent. The rising expectations may have been countered by skepticism about the longer term path of rates, as traders recalled that the Fed hiked only once in 2016 after starting the year with bolder projections, a New York-based trader said.

Yellen said there’s too much uncertainty surrounding fiscal policy from the new administration for it to be figured into the Fed’s economic forecasts. A lack of details from the Trump team had been cited by traders as helping to derail the post-election dollar rally, sending the greenback to six straight weekly losses until last week saw the first advance of the year.

  • Richmond Fed president Jeffrey Lacker, speaking in Delaware at the same time as Yellen delivered her testimony, said there’s a compelling case for a March interest rate increase.
  • EUR/USD trading near its 1.0561 low of the session after dropping under tech support from the Jan. 16 low at 1.0580; bids and stop-loss sell orders were filled below 1.0600 after cushioning the euro earlier in the day; extended euro losses may allow a drop toward the Jan. 11 low at 1.0454
  • USD/JPY rose to 114.50 and remained close by as offers in the zone around 114.00 were absorbed and as stop-loss buy orders above 114.20 were triggered, with the dollar’s gain slowed by further offers above 114.45, a trader in London said