The U.S. Dollar was broadly higher and the Index pushed to a 2-week peak during the Asian trading session following speculation that the Federal Reserve is on the verge of an interest rate increase.
Yesterday, the new head of the Fed, Janet Yellen, said that she believed that the quantitative easing scheme would likely draw to a close by the fall and interest rates would likely be raised shortly thereafter, an event which, if realized, would occur by early next year, much sooner than the markets had expected. Those comments sent yields on U.S. Treasuries surging and pushed the U.S. Dollar Index up by 0.7%, the largest single day’s gain in more than a month.
As reported at 10:29 a.m. (JST) in Tokyo, the USD/JPY pair jumped 0.9% to trade at 102.40 Yen, while the EUR/USD dipped to $1.3822, a loss of 0.7%. The USD/CAD was trading at C$1.273, a low not seen in more than four years while the AUD/USD fell below $0.91. The U.S. Dollar Index, a measure of the greenback’s strength against its major rivals, was trading at $80.04 .DXY.
Markets’ Takeaway Ignores Yellen’s Caution
The Fed’s monetary policy decision announced yesterday left interest rates unchanged and while Ms. Yellen had pointed out that the existing low rates were likely to remain in place for a long while, even after a sound economic recovery, markets chose to accept the more hawkish implications. That, analysts say, is likely to be the reason why the greenback’s rally is likely to fade equally as fast.