25 Feb 2015
Yellen’s speech reflected a dovish tone, but window for USD selling is small – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, shares the key elements related to the rate hike from yesterday’s Yellen’s speech, and adds that the window for USD selling is small as the March FOMC meeting will give clarity on a rate hike.
Key Quotes
“We were not surprised with the tone and content of the testimony yesterday. It made little sense to us for market participants to expect an explicit signal from Chair Yellen on the timing of the rate increase. Why do it yesterday when you can wait at least until 18th March before deciding?”
“Yesterday was the day to set out what might happen and if the jobs data and other data are consistent with lift-off then expect "patient" to be removed next month.”
“Of the two elements of the dual mandate, we certainly believe the current inflation picture is more likely to change rather than the current jobs picture. Factors driving inflation lower may already be changing. Crude oil prices have stabilised, wages look to be now picking up (NFP & ECI data) while "international developments" don’t look as deflationary as a month ago.”
“Indeed, it was notable that Chair Yellen yesterday mentioned upside as well as downside risks in regard to international developments.”
“So it’s really about the data of course! In that sense, assuming no change in the strength of the US jobs market and no major, sudden deterioration in "international developments", we see a high chance of the FOMC changing its guidance on the timing of the first rate increase at the next meeting on 18th March. The window for US dollar selling looks pretty small to us.”
Key Quotes
“We were not surprised with the tone and content of the testimony yesterday. It made little sense to us for market participants to expect an explicit signal from Chair Yellen on the timing of the rate increase. Why do it yesterday when you can wait at least until 18th March before deciding?”
“Yesterday was the day to set out what might happen and if the jobs data and other data are consistent with lift-off then expect "patient" to be removed next month.”
“Of the two elements of the dual mandate, we certainly believe the current inflation picture is more likely to change rather than the current jobs picture. Factors driving inflation lower may already be changing. Crude oil prices have stabilised, wages look to be now picking up (NFP & ECI data) while "international developments" don’t look as deflationary as a month ago.”
“Indeed, it was notable that Chair Yellen yesterday mentioned upside as well as downside risks in regard to international developments.”
“So it’s really about the data of course! In that sense, assuming no change in the strength of the US jobs market and no major, sudden deterioration in "international developments", we see a high chance of the FOMC changing its guidance on the timing of the first rate increase at the next meeting on 18th March. The window for US dollar selling looks pretty small to us.”