Dollar Indecisive Ahead of Yellen Confirmation

Janet Yellen, President Barack Obama's nominee to lead the Federal Reserve, testifies at her confirmation hearing before the Senate Banking Committee at 10 a.m. eastern time on Wednesday.

Dovish Expectations

Yellen is widely seen as a policy dove more concerned about the high level of unemployment than the threat of rising inflation. She is widely expected to maintain the accommodative monetary policies of Fed Chairman Ben Bernanke, whose term finishes at the end of January.

Prepared Remarks Trigger Market Optimism

Yellen's prepared remarks released on Wednesday heightened expectations that the Federal Reserve will continue its program of quantitative easing for the near future.

Yellen said "We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession."

Dual Mandate of the Fed

In her statement, she addressed the Fed's dual mandate to pursue maximum employment and stable prices.

Yellen said unemployment "is still too high, reflecting a labor market and economy performing far short of their potential" and "inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time."

Wording Within Statement  

In a key sentence that sparked market optimism Yellen stated “a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases”

The wording implies that tapering may be pushed back, dampening the speculation over a possible reduction of QE in December.

Stock Indexes Soar to Record Highs

In the wake of Yellen's statement, the Dow and S&P 500 both closed at record highs.

Meanwhile, the US Dollar sold off as the prospect of continued accommodative policy from the Fed weighed on the currency.

US Dollar Index Daily Chart

Looking at the ICE Dollar Index daily chart we can see that the greenback has been moving sideways after its recent rally. The 200 day moving average and 50% retracement level are forming resistance to the upside, while the 50 period moving average and 23% Fibonacci level represent potential support below.

 

Posted In: NewsForexEconomicsFederal ReserveMarkets
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