The Japanese Yen remained on the defensive during Tuesday’s Asian trade while the U.S. Dollar suddenly found itself in a similar predicament following unexpected comments from the Federal Reserve chief which led FX traders to speculate on the Fed’s monetary policy. Janet Yellen, a well known dove who took over the role the chief’s position earlier this year, had followed the hawkish framework laid out by her predecessor, Ben Bernanke, said yesterday that the U.S. job market still showed remained considerable slack and that additional stimulus might effectively eliminate that slack. Full employment is one tenet of the Fed’s dual policy mandate, and her mention of additional QE effectively sent the greenback spiraling.
As reported at 11:41 a.m. (JST) in Tokyo, the U.S. Dollar Index was trading at 80.100 .DXY, slipping from the recently struck 2-week peak of 80.296 .DXY. The Index is used by market traders as a measure of the dollar’s strength in relation to major peers. The USD/JPY managed to maintain the majority of gains and held at 103.23 Yen, not far from the 3-week peak of 103.44 Yen. The EUR/USD traded higher at $1.3773, edging off the recent low of $1.3721.
Yellen’s Intent
Analysts believe that Ms. Yellen could be preparing the markets for the possibility of a monetary policy modification that could halt the current plans to taper quantitative easing. Only last month in testimony before the U.S. Senate, Ms. Yellen commented that she thought interest rates might be increased beginning in the first quarter of 2015 and analysts believe that the recent comments may be intended to partially reverse the hawkish impression she gave then.