Will Yellen Reinforce Her Comments from FOMC Meeting? - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that on a DXY basis, the US dollar is close to unchanged from the pre-Easter London holiday close underlining the lack of drivers for the dollar over the vacation period.
“The lack of movement also reflects the fact that the anticipated key developments for the dollar lie ahead with Fed Chair Yellen speaking this afternoon (1720 BST) at the Economic Club of New York. Prior to that Fed President Williams will speak in Singapore this morning and Fed President Kaplan will speak after Chair Yellen in Austin, Texas. Yellen’s key comments today will of course be followed by the usual key data at the turn of the month with both the nonfarm payroll report and the ISM Manufacturing report being released on Friday.
Any comments from the Fed Chair are always important but perhaps today’s are a little more important than usual given the degree of surprise and incredulity her dovish comments were met with by market participants after the FOMC meeting on 16th March. Since then there has been what looks like a concerted effort by other Fed officials to remind market participants that the FOMC is still planning to raise rates by June.
Fed Chair Yellen did state on 16th March that April was a “live” meeting but coupled with her predominantly dovish comments that comment was lost. Given other Fed officials have repeated that April is “live”, it will be interesting to hear whether Yellen decides to repeat that message today. More broadly speaking it will be interesting to see whether Chair Yellen attempts to alter the impression left at that press conference that the FOMC was no longer “data-dependent” and more willing to take some risks that may result in an overshoot of the 2% inflation target mandate.
The data from the US over the Easter break was mostly strong but the standout for us was the surprisingly large upward revision to Q4 real GDP, from 1.0% to 1.4% Q/Q annualised – a relatively large change for the third attempted estimate and double the 0.7% first estimate made. The change was also more favourable for growth ahead with consumer spending revised higher, from 2.0% to 2.4% while inventories were revised lower.
The annual Q4/Q4 growth rate was revised up from 1.9% to 2.0%. The core PCE annual inflation rate, released yesterday, remained at 1.7% in February, slightly less than the 1.8% expected – but remember, Chair Yellen expressed scepticism of the upturn to January suggesting it would correct lower – that certainly didn’t happen in February – in fact to two decimal places it picked up further.
Still, the yield spread situation has not changed dramatically on the back of recent data and as mentioned at the start, it is the speech today by Yellen and the data through the remainder of this week that have the potential to shift the market.
Certainly we maintain that the US data flow remains inconsistent with the dovish press conference by Yellen on 16th March and today provides Chair Yellen the opportunity to rectify that with comments that are viewed as more balanced and more in line with Fed speakers who have expressed a view since that FOMC press conference. While that would obviously help lift the US dollar into the key data on Friday, we are somewhat dubious of any great shift in tone being evident in Yellen’s comments later today.”
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