Yellen comments boosts dollar

London / AFP

Comments by Federal Reserve chief Janet Yellen that an interest rate increase will likely be appropriate “relatively soon” gave a further shot in the arm to the dollar on Thursday.
In testimony prepared for delivery to the Joint Economic Committee of Congress, Yellen said a rate hike would be appropriate as long as there is further evidence of progress in the economy.
The comments sent the dollar climbing against the yen and recovering losses against the euro as it reinforces expectations among analysts that the Fed will hike rates at the December 13-14 policy meeting, one year after the first and only rate increase following the financial crisis.
Higher rates would encourage investors to shift funds to the United States from places where ultra-low rates are set to continue, like the eurozone and Japan.
The dollar has been on a rally since Donald Trump’s surprise election win last week as his presidential plans include boosting infrastructure spending and cutting taxes, measures that would increase inflation, with interest rates likely to follow.
Equities in Europe and the US stayed relatively steady ahead of Yellen’s public appearance.
Around 1430 GMT, London and Paris share prices were moderately higher while Frankfurt shunted slightly downward, as investors became unwilling to bet on risky equities.
The Dow edged higher in opening trading.
“This will be the first time that Janet Yellen will be in the hot seat since Trump clinched the White House victory, so the event is set to be very politically charged, so much so that it is unclear how much useful information we are actually going to be able to walk away with,” said City Index analyst Fiona
Cincotta.
Asian markets were hit by fresh volatility as uncertainty permeates trading floors after Trump’s shock election win.
Investors have been struggling to ascertain the outlook for the global economy under a Trump presidency after his rhetoric regarding trade agreements and spending plans.

HIKE GUARANTEED
Markets will pore over Yellen’s testimony later in the day, hoping she will provide some idea about the bank’s monetary policy in light of Trump’s win.
Dealers have largely expected the Fed to lift rates next month and then gradually through next year, and Yellen said in her prepared remarks that the central bank still expects it will only have to raise rates gradually.
But analysts say that if Trump follows through with pledges to boost spending and cut taxes, inflation could rocket, forcing the Fed to act. “A December rate hike is almost guaranteed,” James Woods, global investment analyst at Rivkin Securities in Sydney, said in an email to clients.
“What will be important will be any revisions to future hike projections.”
On oil markets, traders were waiting to see if the OPEC producers cartel could hammer out a deal to cut crude output.
The commodity surged this week on news the group and Russia were pushing for an agreement before its twice-yearly meeting on November 30.
At least 11 OPEC members will meet in Doha on Friday for an “informal and consultative meeting,” Qatar’s energy minister Mohammed Saleh al-Sada confirmed.
The impromptu meeting is likely to focus on a deal to limit oil production.
Saudi Arabia, which may attend Friday’s meeting in Doha, has lobbied for a deal to limit oil production because of perceived global oversupply.