Yellen Signals Rate Hike Likely This Month

Her remarks will be the last from a Fed official before the "quiet period" ahead of the March 14 rate-setting meeting of the FOMC.

The reality is that the current environment-whether it is low financial stress, ultra-low market volatility, good U.S. dataflow, firmer USA inflation, the fact the United States dollars has given up half of its post-election gains, stocks at the all-time highs, Treasury yields well off the recent highs (even after the latest move), and the fact that the global economic backdrop has improved-makes a March hike extremely "digestible".

One of the main measures the Fed committee looks for when evaluating further hikes is the rate of inflation.

The U.S. stock market surged early this week, as did indexes of the dollar's value and consumer confidence, phenomena President Donald Trump was quick to attribute to himself.

The S&P 500 was down 0.18%, the Dow Jones Industrial Average slipped 0.13%, and the Nasdaq fell 0.2%.

Yellen noted that various stumbling blocks slowed the Fed's anticipated pace of rate increases in 2015 and 2016, including the oil price crash, a strengthening dollar, market turbulence and a slump in US economic and job growth.

While US President Trump didn't impress markets with any new economic news during his Presidential address on Tuesday night, his surprisingly Presidential tone and his reassertion that he would introduce a $1trillion infrastructure programme helped to calm trader frustrations.

The U.S. dollar index (.DXY) fell 0.8 percent against a basket of six major currencies as investors took profits but it was still on track for its fourth straight weekly gain.

"The market has been looking for reassurance that Trump intends to follow through on his campaign promises for fiscal spending, tax cuts and deregulation", said James Woods, global investment analyst at Rivkin in Sydney.

The dollar also advanced 0.35 per cent on the yen to 113.14 yen.

Japan's Nikkei soared 1.1 per cent, buoyed by a weaker yen.

Two-year US Treasury yields jumped to 1.304 per cent, the highest since December, to match their highest levels since 2009.

Fed Governor Jerome Powell told CNBC, "I think the case for a rate increase in March has come together, and I do think it's on the table for discussion".

The primary reason for EUR/USD's fall on Tuesday night and Wednesday was the increased strength of the US Dollar.

The stronger dollar weighed on gold, which dropped 0.3 per cent to 1,244.36 an ounce, extending Tuesday's decline.

In commodity markets, oil prices edged up as investors took heart from strict OPEC compliance with its pledge to cut output, though evidence of increasing USA production capped gains.

The US 10-year yield rose to 2.41%, up from the bottom of the trading range at 2.3%, and it could possibly target a move to 2.5% next, Boye says.

  • Joey Payne