Fed Chair Janet Yellen put a 2015 rate hike back on the agenda yesterday after markets had moved back their expectations of a rate rise this year following last week’s FOMC meeting. Speaking at the University of Massachusetts, Yellen said that she expects the various headwinds to economic growth to fade and for inflation to gradually move back to 2%. She therefore judges it appropriate for the Fed to raise its target range of the federal funds rate sometime later this year.
The dollar strengthened after Yellen’s speech and continued to make gains in today’s Asian session. The greenback was back above 120 yen after hitting a low of 119.22 yen on Thursday, and climbed to 120.45 in late Asian session. The euro fell back below the 1.12 level, falling to around 1.1164, while against the pound, the single currency also gave up most of Thursday’s gains to drop to 0.7317. The pound was lifted by expectations that the Bank of England is likely to follow suit with a rake hike. Cable jumped to 1.5250 in late Asian trading.
Inflation figures in Japan came in mixed as national CPI was slightly above estimates at 0.2% in August, unchanged from the previous month. But core CPI, which excludes fresh food fell to -0.1% from 0% previously. The Tokyo core CPI also fell and was -0.2% in September from -0.1% the previous month. The disappointing figures put further pressure on the Bank of Japan to expand its asset purchase program at its October meeting.
Meanwhile, Japan’s government lowered its economic outlook on increased risks from China and a possible US rate hike and announced plans to raise Japan’s GDP to 600 trillion yen.
In commodities, gold prices fell back today after Thursday’s strong rally that took prices to a one-month high above $1150. Oil prices continued to rise for a second day and were up 0.9% at $45.30 in late Asian session.
The rest of the day is looking relatively quiet with no major data expected out of Europe. But third estimates of US GDP for the second quarter, services PMI and the final University of Michigan confidence index for September should keep investors busy in the US session, along with speeches by the Fed’s Esther George and James Bullard.