Dollar Tumbles to Lowest Since September After Yellen's Comments

  • Euro leads gains on cross unwinding against yen, a trader says
  • Sterling rises after McCafferty says favors faster QE unwind

Janet Yellen's House Testimony in Two Minutes

The dollar fell against all its Group-of-10 peers after comments from Federal Reserve Chair Janet Yellen on inflation spurred investors to lower their expectations on the pace of U.S. rate increases.

The Bloomberg Dollar Spot Index tumbled to its lowest level since September after Yellen told the U.S. Congress Wednesday “there was uncertainty about when and how much inflation will respond to tightening resource utilization”. The euro led gains on expectations the European Central Bank could send hawkish signals at its meeting next week while the pound also rose after the Bank of England’s Ian McCafferty suggested in an interview with The Times he favored faster unwinding of quantitative easing.

“Yellen veered slightly in the dovish direction, which makes sense given the soft inflation readings of late,” said Bipan Rai, a senior macro strategist with the Canadian Imperial Bank of Commerce in Toronto. “That implies the USD should continue to trade defensively while U.S. 10-year yields will likely find it difficult to break above 2.40 percent near term.”

The Bloomberg Dollar Spot Index fell for a fourth consecutive day. The 10-year Treasury yield lost one basis point to 2.31 percent after dropping four basis points Wednesday

“If U.S. prices continue to decline, it’ll be hard for the markets to sustain the current mood toward monetary tightening, and some markets are already starting to feel that now,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo.

  • USD/JPY drops 0.2% to 112.97 after rising as high as 113.53
    • Spot rallied briefly through option-related selling, driven in part by short position unwinding in the major cross rates, including the euro, according to an Asia-based FX trader. 
    • Sell stops for leveraged accounts under 112.80: trader
  • EUR/USD climbs 0.2% to 1.1434
    • EUR/JPY rises 0.2% to 129.43 after plunging 1.2% to 129.05 on Wednesday
    • Fresh selling from macro funds above 129.90, trader says
  • GBP/USD gains 0.1% to 1.2897 following comments from BOE Monetary Policy Committee member McCafferty
  • USD/CAD steady after tumbling 1.3% Wednesday following the Bank of Canada’s decision to raise rates for the first time in seven years

— With assistance by Michael G Wilson

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