Markets reacted aggressively to the Federal Reserve Bank`s (Fed) chairman, Yellen, after she spoke yesterday. She made no mention of the US elections, despite concerns that she might sight the election as a reason for holding off on hiking rates. Instead she confirmed market bias and jawboning by other Fed members, by stating that based on current economic data and depending on upcoming jobs and growth data, the Fed is relatively close to hiking rates again.
Markets have reacted by accumulating the USD as it makes large moves across the board with the USDJPY back above 110.00 while the EURUSD trades below 1.0600 and the USDCHF moves further north from parity. Gold has been punished too as we see the precious metal edge closer to the 1200 handle, not seen since May this year. Indices, which are usually negatively correlated to monetary policy tightening, manged further gains as financials gained on the prospect of higher returns to the interest rate dependent sector with the DJIA finishing up 0.19%, the S&P 500 finished up 0.47% while the NASDAQ 100 gained 0.72%.
Today sees several key Fed members due to speak, notably FOMC member Dudley, George and Bullard. Markets will be watching to see their comments on the upcoming rate decisions as the Fed usually tries to gauge markets reaction to different possibilities by testing different rhetoric from FOMC members. Going forward any economic release or comments that may be construed as bullish, confirming the rate hike in December, will see the USD continue to climb as the USD index drives deeper into multiyear highs. While worse than expected data and comments which place the likely hood of a rate hike on the back foot, will see the USD relinquish some of its recent gains as markets re-evaluate their positioning on the Fed meeting.