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Dollar Drops following Dovish Yellen comments

Dollar Drops following Dovish Yellen comments

In a speech to the Economic Club of New York yesterday, Federal Reserve Chair Janet Yellen highlighted the need to be cautious about raising rates. She also highlighted that low oil prices and slower growth abroad are potential risks to any rate hike.

Unsurprisingly, the dovish tone of the speech triggered a Dollar sell off against all major currencies as investors realised that Yellen doesn’t share the optimism of other Fed members. Having opened at 1.4255 yesterday, Cable surged through 1.44 following Yellen’s comments, before a slight reversal to open this morning at 1.4388.

Sterling was left to market sentiment yesterday with nothing in the UK economic calendar to direct it. Gains made against the Dollar last night were courtesy of Yellen’s dovishness and flight away from the Dollar rather than Sterling strength.

With another near empty data day ahead for the UK, ‘Brexit’ talks are likely to be the driver of Sterling price action. The latest Ipsos Mori poll showed that the “In” campaign could have a marginal win with 49% voting to stay within the EU, with 41% voting to leave the EU.

However, it is the reduction in this lead that indicates that public opinion is shifting. With support for the out campaign gathering momentum despite the Bank of England (BoE) highlighting that the UK economy would be “more vulnerable and less resilient if we vote to leave the EU”, expect further Sterling weakness.

The Euro also made gains against the Greenback following Yellen’s speech. The pair hit highs of 1.1301. The single currency saw little change against the Pound however, and it continued to trade sideways within the 1.2700 level with no significant data from either the UK or Eurozone to force it do otherwise.

German consumer price index is the only real data of note this morning as the Euro looks to extend the gains made yesterday. The markets are expecting a 0.2% uptick in both the year-on-year and month-on-month readings.

Data to watch: 1pm German CPI March, year-on-year and month-on-month. 1.15pm US ADP Employment Change

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