US Dollar reaction after Yellen speech to Congress

Fed Chairwoman Janet Yellen addressed congress yesterday on the economic and interest rate outlook for the year ahead. This speech was eagerly awaiting to try and look for clues as to how the Fed may react when President Trump commences his substantial stimulus package. Her comments were marginally hawkish stating that waiting too long to raise interest rates would be unwise. It sends a clear signal that the Fed will look to raise interest rates as previously outlined. Janet Yellen wants to avoid a position of leaving things too long and then having to make rapid increases.

This afternoon sees a raft of economic data which should keep the US dollar moving. US retails sales for January are released at 13:30 this afternoon and should give some idea as to how confident consumers are following the US Presidential election.

US inflation numbers are also released where high volatility is to be expected. The US Federal Reserve have been very hawkish in their approach following the last rate increase in December and so the Fed will be watching these data releases very closely. As things stand the expectation is that the US Fed will look to hike three times in 2017 from 0.75% to 1.5% with the first move expected in March. US Federal Reserve official Patrick Harker was recently reported as saying “March is on the table” whilst also outlining his own views that the Fed should hike three times this year.

US Dollar impact from Trump policies & Russian scandal

The Trump election victory is still creating uncertainty with political controversy and reported scandal with Russian intelligence. Trumps national security adviser Michael Flynn has now resigned due to his conversations with Russia before President Trump was in power and before the election. An investigation is now being requested so there is likely to be more mileage in this story. With the Trump administration still clearly finding its feet there is likely to be more currency volatility stemming from these stories.

Whilst US interest rate increases in theory should be good for the US Dollar the political element should not be understated. The Fed only managed to raise interest rates once last year and whilst the American economy is performing reasonably well for now, things could slow down at a moment’s notice and this is what makes the thought process for the Fed very finely balanced. Donald Trump has also made it abundantly clear that a weaker dollar would be beneficial for the US. Clients looking to sell dollars would be wise to consider moving sooner rather than later and take advantage of the levels available which currently remain close to 31 year highs for USD/GBP. It is only a matter of time before Trumps major policies will be introduced.

The loss of Michael Flynn poses further questions over Trumps involvement with the Russians, and further updates on this discovery could damage Trumps reputation and weaken the US Dollar. Call us today on 01494 725 353 or email me here so a member of our team can talk you through the different options available to you in the event of further political shocks.

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