Since yesterday's report the USD has strengthened, supported by Fed Chair Yellen's speech and a run of good data, while the EUR and JPY have softened.
Yesterday morning, a couple of hours before the New York close, headlines from Fed Chair Yellen's speech hit the wires which the market took as hawkish. She noted that the Fed was close to achieving its dual goals and reiterated the Fed’s expectation for gradual rate increases, albeit with timing being data dependent. One revelation was that her “dot” was aligned to the Fed median of three rate hikes each year, as opposed to being at the dovish end of the spectrum. This provided support to the USD even as Yellen also noted that the Fed paid attention to the USD, as it influenced the US economy.
Overnight, the USD gained further ground following a number of positive data releases – a strong rebound in housing starts, a stronger Philly Fed business confidence reading and lower jobless claims data, which point to further labour market strength.
These releases coincided with ECB President Draghi's press conference, after the earlier “no change” policy decision. Draghi came across as fairly dovish, noting that “there are no convincing signs yet of an upward trend in underlying inflation” and that the ECB would look through a temporary rise in headline inflation induced by higher oil prices. The ECB remains on track with its asset purchase programme, although Draghi continues to refuse to acknowledge that reducing the size from €80b to €60b per month from April does not amount to “tapering”, rather a “recalibration” back to the previous level. EUR dipped below 1.06 during Draghi's press conference and it has since recovered to 1.0630.
The NZD has managed to keep pace with the stronger USD. The NZD was on a downward path yesterday morning, and fell further after Yellen's speech, reaching around 0.7120 in the afternoon. It then recovered to a high of 0.7200 last night before edging down to the current level of 0.7160, within 10pips of the level prevailing as yesterday's report was sent out. It's all really been driven by global forces. Local data releases showed a robust PMI, high consumer confidence and a surprising plunge in building consents, but none were market moving.
The AUD has followed the same path as the NZD, leaving NZD/AUD close to the 0.95 mark, with Australian labour force data offering little market reaction.
The yen has been the worst performer, given its high correlation with US Treasury yields. USD/JPY is up to 115.40. Recall that the cross was around 112.60 some 48 hours ago. The driving force has been a higher US 10-year rate, which was around 2.32 at that USD/JPY low point and now trades a shade under 2.50%, at its high for the session.
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