In her speech on Tuesday, Ms. Yellen justified the slower path of interest-rate hikes by saying that global financial uncertainty might pose risks to the U.S. economy, which impacted the currency of the strongest economy negatively as low-interest rates decrease the desire of yield-seeking investors for the dollar.
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Fed Chair Janet Yellen argued that lowering the speed of expectations in the market has declined bond yields, giving the economy the support it needs in the face of weaker global growth. The Fed decreased the expected rate hikes to two for 2016.
She used her remarks so show the relationship between the central banks and the financial market, saying that this mechanism is used as ‘automatic stabilizer’ for the economy. This comment came after the backdrop of criticism from Republicans and economists who stated that such monetary policy will hurt the economy.
Her speech had the sole purpose of defending the Federal Reserve's approach to the debate regarding the rules vs. discretion for being understood by the markets. Yellen also stated that its normal for the Federal Open Market Committee and investors, not always to see eye to eye and in such situations FOMC should do what it thinks it is right, and also it should explain the rationale behind it.
This is the second dovish speech this month by Ms. Yellen, which has caught the currency markets off guard. Similarly, to her first statement this month on 15th of March, where the Fed also decreased the projections for interest rate increases.
A strategist from RBS Securities, Brian Daingerfield said his expectations are for the greenback to stay under pressure, because of the uncertainty of the data that might compel the Federal Reserve to raise interest rates. He further stated that the Fed is more concerned about problems from abroad, as U.S. improvements in labour and consumer spending had little influence over the Federal Reserve’s decision. This means that dollar gains will be limited due to the constant adjustments of the market to how data will affect the Fed’s decision.
Meanwhile companies in the private sector continue to add jobs, as the ADP Non-Farm Employment Change showed that 200 thousand jobs were added in March. The sector was expected to add 195 thousand jobs, but still the new jobs added in March represented a decrease from the 204 thousand jobs added in February, which was revised lower from the initial report that stated 214 thousand jobs. On the other hand, this number was the same as expectations on Wall Street.
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