Dollar drops as investors deem Yellen’s comments more dovish

U.S. Federal Reserve Vice Chair Yellen testifies during a Senate Banking Committee confirmation hearing in WashingtonThe U.S. dollar retreated against major currencies as investors deemed Fed Chair Yellen’s comments more dovish than hawkish.

Yellen’s remarks regarding the timing of raising interest rates did not show anything new, which means the rate hike could be in September or December.

The economy was likely strong enough to support an interest rate hike by the end of the year, Yellen said. Yet, the Fed lowered its growth forecasts for this year.

She said the current economic situation might warrant “only gradual increases in the Federal funds rate,” but she stressed that the policy would rely on the development in economic data.

This means the main attention in the coming period would be on data, and the dollar thereby would be very sensitive to any sharp rises or drops.

The economy “has been expanding moderately,” while exports and investments by businesses have been soft, Fed officials said.

“We obviously have no target for the dollar … in spite of the appreciation of the dollar the committee obviously thinks that the economy is likely to do well enough to call, likely call, for some tightening later this year,” Yellen commented on the dollar’s strength.

Hence, the overall stance of Yelled was reckoned more dovish than hawkish as investors predicted after the recent parade of upbeat data to see Yellen referring explicitly the first interest rate hike in nearly a decade would occur in September.

The dollar index dropped to a low of 94.30, while currently trading around 94.47.

The drop below SMA 7 and SMA 15 on the 4-hour chart has supported the bearish direction, while the fall in the RSI 14 has given some momentum.

A closing for the 4-hour candle below the support line may trigger further losses, where the coming support is located at 93.78.

USDX down after Yellen comments fxcomment

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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