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Yellen does not close door on future rate hikes; volatility in GBP after disappointing industrial production numbers; AUD and NZD holding their own against USD

Currencies
Yellen does not close door on future rate hikes; volatility in GBP after disappointing industrial production numbers; AUD and NZD holding their own against USD

By Kymberly Martin

Overnight European currencies have weakened. The NZD and AUD have managed to hold their own despite a stronger USD after Yellen’s testimony.

A slightly sunnier mood prevailed over European markets overnight. The Euro Stoxx 50 has gained more than 2.0%, led by more than a 6% rebound in financial sector companies. Measures of European corporate credit risk have declined.

The USD bided its time ahead of Fed Chair Yellen’s testimony early this morning. Her comments were fairly balanced, and certainly did not close the door to future rate hikes as some market participants feared/hoped.

The USD index was stronger after the comments but is currently pulling back from its highs.

European currencies were generally weaker overnight, including the ‘safe haven’ CHF. However, it is currently attempting a bit of a come-back as upward momentum in the USD has faded.

The EUR/USD currently trades around 1.1230, someway off its intra-night lows.

The GBP has experienced a volatile night. It was briefly hit hard by the release of very disappointing December UK industrial production data. It then fought its way back to almost touch 1.4580 in the early hours of this morning, before slumping back to 1.4470 currently.

For much of the night there seemed to be little interest in the JPY, as generally more benign market sentiment dampened its appeal as a ‘safe haven’. However, it has strengthened in the early hours of this morning, breaking below 114.00 for the first time since November 2014.

The AUD and NZD have steered clear of most of the night’s action. Both were jostled a bit around the time of Yellen’s speech, briefly dipping back toward early-evening lows. Overall, both now trade a little higher than yesterday morning.

The NZD/USD currently trades around 0.6650. Resistance is eyed at the 200-day moving average of 0.6700.


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Kymberly Martin is on the BNZ Research team. All its research is available here.

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