The testimony by Federal Reserve Chair Janet Yellen was the main news item for foreign exchange markets, as it put a lid on the dollar rally by bringing down Treasury bond yields. The Fed Chair indicated that there was no pre-set schedule for interest rate increases and that for the Fed to start increasing rates, it needed to be convinced that inflation was going to head towards its 2% target. In December US inflation was at 0.8%, although lower fuel prices exerted temporary downward pressure.
Dollar weakness was most evident against the Japanese yen, which fell back below 119 after an unsuccessful attempt to scale the 120 mark. The yen’s gains took place even as the US stock market rallied to fresh all-time highs as the Fed Chair signaled rates would stay at zero for a while longer.
The Australian dollar posted substantial gains against the US dollar, as not only was the greenback under some pressure due to Yellen and subdued consumer confidence, but Chinese HSBC Manufacturing PMI surpassed expectations to climb over 50 into expansion territory for the first time in 4 months. The aussie was trying to break north of the 79 US cents level and last traded around 0.7880.
Chinese markets reopened on Wednesday, following the week-long Lunar New Year holidays.
With the exception of US new home sales, there is little in the way of economic data releases planned for today. Central bankers will again dominate the agenda, as appearances by Bank of England officials including Governor Mark Carney, the ECB’s Mario Draghi in the European Parliament and the second day of Janet Yellen’s testimony before Congress could provide some cues for market moves.