The dollar has had a roller-coaster ride this morning as Federal Reserve Chairwoman Janet Yellen appeared before the House Financial Services Committee in her first testimony as the head of the U.S. central bank. Ms Yellen had not been expected to diverge from the bank's analysis or policy in her remarks and she did not do so, reaffirming the long term guidance for interest rates and the current reduction in quantitative easing purchases.
Her two and a half page prepared remarks, released at 8:30 am ET, contained no surprises and were in essence a repeat of the last FOMC statement. The section on monetary policy contained the following, "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings." Euro selling began at the release and continued for almost an hour dropping the united currency from 1.3681 to 1.3630 versus the dollar.
By the time Ms Yellen's began reading her statement a little after the scheduled time of 10:00 am ET, the euro had already recover most of its losses. A few minutes later as the questioning began it was back to 1.3674.
For the first hour of the discussion, most of it occupied by lengthy remarks by individual Congressmen and short answers from the Chairwoman, the euro traded in a narrow 1.3667 to 1.3680 range. After three attempts to penetrate beyond the earlier high of 1.3683 the euro broke back falling to 1.3646 just after the London close. Ms Yellen's continuing remarks had, in the interim, brought little new information or analysis to the explication of Fed policy. As she said "I expect a great deal of continuity."
Unless there is indication of a serious retreat in the U.S. economy, the taper will continue. Even though, in Ms Yellen’s words, the job market recovery is “far from complete,” that is all the markets needed to hear,
Chief Market Strategist
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