Dollar Tumbles to Lowest Since September After Yellen's Comments

Yolanda Curtis
July 14, 2017

The US dollar was weaker on Thursday as investors continued to mull over a dovish testimony by Federal Reserve Chair Janet Yellen, while the pound got a boost from Bank of England policymaker Ian McCafferty.

Asked if it would be possible to reach three percent over the next five years, Yellen said, "I think it would be quite challenging".

In her testimony, Yellen expected the USA economy will continue to expand at a moderate pace over the next couple of years, as the steady job gains would support income growth and then consumer spending.

The bellwether Philippine Stock Exchange index (PSEi) ended nearly flat, inching down 0.01% or 1.52 points to 7,936.85.

FED TALK: Yellen's comments in her semiannual testimony to Congress assuaged concerns among some traders that the Fed has been too hasty in raising interest rates despite stalling inflation and sluggish USA economic growth of just 1.4 percent in the first quarter. She commented that the central bank is likely to start unwinding its massive $4.5 trillion program later this year. The Fed appears to still be in a position to continue hiking rates. She is expanding on her views on inflation, emphasizing that the dual risks to inflation: prices rising too slowly and prices accelerating too quickly. He explained that the main mystery of the United States economy lately has been why low unemployment growth has not translated into stronger growth of wages and prices.

The dollar was 0.09 percent higher against the yen.

Brazil's real rose to a near-eight-week high against the greenback after former President Luiz Inácio Lula da Silva was convicted of corruption charges, reducing traders' fears that he could return to office next year to challenge the pro-business agenda of incumbent President Michel Temer.

In her testimony on Capitol Hill, Yellen signaled that the Fed would take a cautious approach to tightening policy in the face of an uncertain inflation outlook. "The last decade, something like 1.1 percent", Yellen said, adding that labor force growth is also on the decline, which would pose a challenge.

Technology shares also rose sharply, with the tech index also up 1.3%.

The comments were part of Yellen's bi-annual report to Congress, where she faced tough questions from legislators. Analysts are now holding a 55 percent expectation for a rate hike in December while the expectation for a September rate hike which was at one point highly anticipated is now under 10 percent.

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