The US dollar was managing to hold off its recent lows, even after Fed Chair Janet Yellen struck a rather dovish tone during a speech at a San Francisco Fed event late Friday. The Fed Chief advocated a “gradualist” approach to raising interest rates and sounded a note of caution against hiking rates too fast too quickly. Yellen felt unemployment had room to fall more, while there would have to be some signs that inflation was also picking up before she and her colleagues decided to raise rates. The economy was not yet strong enough to take sustained increases in interest rates, in Yellen’s view. In all, a rate rise in September / October was looking like the more probable bet following Yellen’s appearance, but the dollar remained supported on the idea that the dollar with a Fed that would raise a little later was still preferable to other currencies with central banks that were cutting rates or pumping money into their markets.
The euro was buying 1.0870 dollars – a little off Friday’s close, whereas dollar / yen remained above the 119 mark at 119.23. The yen was not helped by Japanese industrial output numbers for February that showed a steep 3.4% contraction compared to expectations of only a 1.8% decrease.
The week ahead is likely to be interesting, as key Eurozone inflation data is released on Tuesday and nonfarm payrolls for March out of the United States will come out on Friday while many Western countries will be on holiday for GoodFriday. The coming Easter holidays should mean that liquidity in the markets will be rather thin. Greece’s list of reforms will also be discussed and some new clues will be provided as to how the country and its lenders plan to move forward.
For the remainder of the day, German and Spanish preliminary inflation numbers will provide some hints towards tomorrow’s flash Eurozone inflation. Economic sentiment numbers for consumers and businesses out of the Eurozone will also come out. Later in the day, personal income and spending and the key Personal Consumption Expenditure (PCE) price index – the Fed’s favorite inflation indicator – could also move markets.