Asian Session – Fed’s Yellen rattles markets with earlier timeframe for higher interest rates
March 20, 2014 7:35 am
The dollar rallied broadly overnight, although it did give back some of those gains during the Asian session, as Janet Yellen, the new Chair of the Federal Reserve predicted that US interest rates could rise about 6 months following the end of tapering.
The US central bank reduced its monthly bond-buying program by an additional 10 billion dollars to 55 billion; a step that was well-anticipated by the markets. Furthermore, again as expected, it changed its forward guidance to say that it would take into account a broader array of factors in deciding when to hike rates, although it would still maintain a key focus on unemployment.
The fresh information out of Yellen’s press conference was the definition of the time period for which interest rates would probably stay at zero following the end of tapering. Tapering itself will most likely end in October or December. Yellen said the considerable time period that rates would stay low after tapering and QE end was “about 6 months”. This would put the timetable for the first rate hike between April and June.
This was slightly earlier than what the market expected, which was the second half of 2015. Of course it should be stressed that the Fed is not on a predetermined, autopilot kind of mode to taper until October and then to raise rates next year in April. This path is very much data-dependent and it will depend on the economy’s performance.
Nevertheless, overall it looks like the age of zero interest rates will end in 2015 for the United States and dollar interest rates – as well as pound interest rates – should be heading higher next year if all goes according to plan.
Against the yen the dollar traded at 102.22 having hit 102.69 the previous day and against the euro it was at 1.3838, off the 2-week low of 1.3810.
Stock indices dropped, helping safe havens do well and hurting currencies like the Australian dollar which dropped close to the 90 cent level against the US dollar at 0.9026. Gold was also hurt by the resurgent dollar following also the reduction of geopolitical tension surrounding Crimea earlier in the week. It traded at around the 1330 dollars per ounce level.
There was little economic news on tap for the remainder of the day, with the exception of US existing home sales for February.
The dollar rallied broadly overnight, although it did give back some of those gains during the Asian session, as Janet Yellen, the new Chair of the Federal Reserve predicted that US interest rates could rise about 6 months following the end of tapering.
The US central bank reduced its monthly bond-buying program by an additional 10 billion dollars to 55 billion; a step that was well-anticipated by the markets. Furthermore, again as expected, it changed its forward guidance to say that it would take into account a broader array of factors in deciding when to hike rates, although it would still maintain a key focus on unemployment.
The fresh information out of Yellen’s press conference was the definition of the time period for which interest rates would probably stay at zero following the end of tapering. Tapering itself will most likely end in October or December. Yellen said the considerable time period that rates would stay low after tapering and QE end was “about 6 months”. This would put the timetable for the first rate hike between April and June.
This was slightly earlier than what the market expected, which was the second half of 2015. Of course it should be stressed that the Fed is not on a predetermined, autopilot kind of mode to taper until October and then to raise rates next year in April. This path is very much data-dependent and it will depend on the economy’s performance.
Nevertheless, overall it looks like the age of zero interest rates will end in 2015 for the United States and dollar interest rates – as well as pound interest rates – should be heading higher next year if all goes according to plan.
Against the yen the dollar traded at 102.22 having hit 102.69 the previous day and against the euro it was at 1.3838, off the 2-week low of 1.3810.
Stock indices dropped, helping safe havens do well and hurting currencies like the Australian dollar which dropped close to the 90 cent level against the US dollar at 0.9026. Gold was also hurt by the resurgent dollar following also the reduction of geopolitical tension surrounding Crimea earlier in the week. It traded at around the 1330 dollars per ounce level.
There was little economic news on tap for the remainder of the day, with the exception of US existing home sales for February.
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