FX market outlook

FX market outlook

Dollar holds firm after Yellen signals rate hikes to come soon.

The US dollar held onto gains after a strong rally on Tuesday following comments made by Fed Chair Janet Yellen.

In her semi-annual testimony before the Senate Banking Committee, in Washington DC, Yellen signaled to the markets that the US central bank could raise interest rates as soon as at its next policy meeting in March.  The tone of her pre-prepared speech was more on the hawkish side and this helped drive the greenback higher. The dollar index ,which measures the US currency against six other major counterparts, rose to 101.38 on Tuesday following Yellen’s remarks, to reach the highest since January 20. US equity markets rose to new highs.

All eyes continue to be on Yellen as she is scheduled to appear before the House of Representatives’ Financial Services Committee later today.

The dollar consolidated gains versus the yen throughout the Asian session and managed to hit a new two-week high of 114.57 in late session trading.

The euro wallowed near the one-month low of $1.0560 that was reached on Tuesday. The single currency is expected to remain under pressure amid political risk in Europe as focus turns to elections in France and the Netherlands, while Greek debt is also a factor behind euro’s weakness.

Sterling was steady against the dollar after a big tumble on Tuesday due to mixed UK inflation data. Focus today turns to UK employment data.

Oil and gold retreated due to the stronger dollar, as these two assets tend to have an inverse correlation with the US currency. Gold traded to as low as $1223.59 an ounce in Asia. WTI oil fell to a one-week low of $52.71 a barrel.

The most important data point on the economic calendar today would be the UK jobs data, followed by US inflation and retail sales figures. Fed Chair Janet Yellen’s appearance before the House of Representatives’ Financial Services Committee later in the day will also attract the market’s attention again.