On January 18, the head of the Federal Reserve highlighted that the economy is approaching full employment and inflation is moving toward the target of 2%. It should be noted that in December, CPI rose to 2.1% year-over-year.
Statements by the Federal Reserve Chair Supported the Dollar’s Rise
According to Yellen, the Fed is confident in further economic growth, otherwise there would not have been a rate hike in December. It is planned to conduct several rate hikes per year until 2019.
The Fed understands that delaying the tightening of monetary policy is not advisable. This could lead to high inflation and instability. In turn, this could force the FOMC to raise interest rates more quickly, which could become a cause of a recession.
Yellen assured that the regulator will make the most effective decisions in each situation.
The goal of the Fed’s work is to improve the country’s economic well-being. Nevertheless, monetary policy cannot solve all problems on its own.
The EUR/USD pair significantly strengthened following the speech by the head of the Federal Reserve. Yellen’s persistence and commitment to previous statements supported the US dollar. The chair of the FOMC did not express doubts about Trump’s fiscal policy or other statements, which traders may have expected. Experts from ForTraders.org note that the probabilities of rate hikes in 2017 are returning to December levels.
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FAQ
What impact did Yellen’s speech have on the dollar?
Yellen’s speech led to a rise in the dollar’s value as her hawkish rhetoric surprised traders.
Why did the EUR/USD pair fall after the speech?
The EUR/USD pair fell due to Yellen’s strong stance on monetary policy, which supported the dollar’s strength.
What were the key points from Yellen’s speech?
Yellen emphasized the economy’s approach to full employment and inflation moving toward the 2% target, while expressing confidence in future economic growth.
