Dollar Trims Weekly Rally as Yellen Tips March, Tempers Outlook

Updated on
  • Weekly gains intact as technical hurdle stalls greenback
  • Peso leads early dollar drop as Wilbur Ross comment supports

The dollar fell Friday though remained on track for its third weekly gain in four after Federal Reserve Chair Janet Yellen all but sealed the deal on a March rate hike.

The greenback saw choppy trading around Yellen’s remarks, paring a morning drop, only to subside again as markets sought equilibrium. The Fed chief said a March rate hike likely will be appropriate if the economy performs as expected, yet refrained from signaling a faster pace of rate increases this year.

  • Yellen’s remarks capped off a week-long barrage of commentary from other Fed officials, who mostly said that a rate increase would likely be appropriate soon. Fed Vice Chairman Stanley Fischer spoke in New York ahead of Yellen and said that she typically “does not tend to make decisions that ignore the views of the rest of the committee.” Yellen was the last Fed speaker before the customary blackout period ahead of the March 14-15 FOMC meeting.
  • The dollar was on the defensive at the start of the session, paring a week’s worth of gains that reached 1.2% as the Mexican peso led the charge against the greenback. For the week, the Bloomberg dollar index is still up about 0.6%.
  • The peso surged more than 2% after Commerce Secretary Wilbur Ross said that the Mexican currency could recover “quite a lot” if the U.S. and Mexico reach a sensible deal on renegotiating the North American Free Trade Agreement; the move contributed to a sour dollar tone that pushed the greenback lower versus a majority of its G-10 peers.
  • EUR/USD rose to a fresh high for the session above 1.0600 in afternoon trading as Treasury yields dropped back from their highs of the day near 2.52%.
  • EUR absorbed offers ahead of 1.0570 as it erased the prior day’s losses and tested technical resistance from the 55-DMA near 1.0600.
  • EUR bids are in place under 1.0495, traders in Europe and Asia said; the common currency has largely shrugged off recent developments in the French presidential election, including pressure on scandal-plagued candidate Francois Fillon to quit the race, perhaps as soon as this weekend, and a summons for Marine Le Pen to appear before a magistrate relating to an investigation of her aides, an offer she has declined
  • USD/JPY trading near 114.05, dropping back with Treasury yields after rising as high as 114.75 around Yellen’s speech