Forex Markets React to FED Chair Yellen's Speech: Euro Drops, Dollar Index Spikes to 25-Day High

This morning’s speech by FED Chair Janet Yellen before the Committee on Banking, Housing, and Urban Affairs, sent currency and equity markets into a frenzy.

The U.S. dollar index surged 0.43 percent to a 25-day high of 101.37; the EUR/USD Forex pair dropped 0.48 percent to a 1.5-month low of 1.0561; the Dow Jones Industrial Average is up about 10 points (+0.05 percent), trading about 18 points from new all-time highs.

Yellen’s speech sent the USD/JPY currency pair surging to 114.48 by 11:00 a.m. EST - highest level in February. The AUD/USD dropped from 0.768 down to 0.7618 - a plunge of 0.8 percent.

Volatility in currency markets spiked when Chair Yellen told the U.S. Senate that a prolonged period of accommodative monetary policy may result in the FED hiking interest rates very abruptly, “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.,” said Yellen.

On the economy, Chair Yellen said labour markets have continued to improve and the unemployment rate, which is currently at 4.8 percent, is much lower than in 2010.

Furthermore, continued improvements in consumer spending, income gains, favorable readings in consumer sentiment and record auto sales, put the U.S. economy on track to “return to 2 percent inflation.”

While the FED Chair highlighted some of the improving sectors of the American economy in her speech, she also pointed to the incoming headwinds and “financial stresses” originating from developments abroad.

Currencies photo by Japanexperterna

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