Yellen Comments on Rates
The US Dollar has seen continued buying across the early European session on Wednesday following comments last night from US Treasury Secretary Janet Yellen. Speaking at the Wall Street Journal’s CEO Council Summit, the former Fed chairman lit a fire under USD as she commented on the potential need for higher US rates, saying: “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”
Stimulus Impact Noted
Commenting on the current stimulus, Yellen went on to say that “Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates.” There has been a great deal of speculation over the impact that recent stimulus will have on the economy, specifically Biden’s $1.9 trillion fiscal stimulus and Yellen echoed these sentiments, telling the summit: “But these are investments our economy needs to be competitive and to be productive. I think our economy will grow faster because of them.”
Yellen Not Attempting to Pressure Fed
However, despite the seemingly hawkish tone to her comments, Yellen was quick to dial to add the caveat that her sentiments did not represent a recommendation or an effort to exert any sort of influence on the Fed. The former Fed chair told the council: “It’s not something I’m predicting or recommending, If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives.”
Biden Pushing for Infrastructure Plan
The US economic recovery has been shown to be in strong health over the course of recent data releases. Inflation, GDP and employment are all tracking higher with the Fed acknowledging the budding momentum in the economy. With Biden now pushing for a new $2.25 trillion infrastructure spending bill to be passed through congress, there is strong potential for the economy to take another step higher. While the Fed has so far cautioned against rising inflation expectations with the view that any spike will be temporary, it has acknowledged upside risks which mean that going forward, the prospect of higher US rates is likely to be dominate discussions more.
The collapse out of the bullish channel from February lows saw the Dollar index trading back down as low as a breach of the 90.98 level. Price has since moved back above the level and while this area holds as support, focus is on a move back up to the 92.07 which is the key upside pivot. Bulls will need to see a break back above here to reclaim momentum.
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