Photograph by Kevin Lamarque — Reuters
By Geoffrey Smith
March 19, 2015

Huh? What Fed? Janet Who?

The dollar has rebounded strongly in trade in Asia and Europe Thursday, as currency traders shrug off Fed chairwoman Janet Yellen’s doveish remarks about the outlook for interest rates at her press conference Wednesday.

Well, that didn't last long.

 

By late morning in Europe, the euro is back at $1.0691–roughly where it was against the dollar before Yellen’s press conference started–having given up nearly two cents from its close at the end of U.S. trading. The euro-dollar trading range Wednesday had been over 4.3%, making it the most volatile day since early 2009.

Yellen had stressed that the Fed was still in no hurry to raise rates for the first time in nine years, despite the fact that the Fed’s Board dropped language about being “patient” in the statement that followed this week’s Open Market Committee meeting. The Fed had lowered its forecasts for both growth and inflation, and consequently also its estimates of where rates will be over the next two years. Interest rate futures contracts now suggest that the Fed won’t actually hike its target rate for Fed Funds until September at the earliest.

A slight downward shift for the future path of US rates
Federal Reserve, ABN

The dollar had been ready for a retracement, having risen by a giddying 7% on a trade-weighted basis in the last month alone. But analysts said the longer-term upward trend is still intact.

“This weakness is not a change in direction, but a temporary move in our view,” said analysts at ABN Amro in a research note. “The Fed’s new forecasts are still consistent with significant monetary policy divergence with the rest of the world.”

With many dismissing yesterday’s market action as a blip, many markets reverted to recent trends again, with both Chinese stock and German bonds hitting new highs, and commodities again coming under pressure.

The dollar’s rebound wasn’t quite as strong against some of the emerging-market currencies that have struggled to cope in recent weeks. Against the South African rand, the Russian ruble and the Turkish lira, it recouped only half of what it had lost on Yellen’s comments.

Meanwhile, the price of crude oil, which had rallied by over over $2.50 a barrel to $47.28 Wednesday, was back at $45.34/bbl by late morning in Europe and again looking to test multi-year lows.

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