US dollar strengthens on rate hike hopes after Yellen’s hawkish comments

US dollar strengthens on rate hike hopes after Yellen’s hawkish comments

The US dollar has gained strength against the British pound and the euro, following hawkish comments from Fed chair, Janet Yellen. Speaking at the National Association for Business Economics annual meeting Tuesday, Yellen indicated a gradual increase was likely the right path for interest rates.

The US dollar moved higher after the Fed September meeting where the policy committee discussed the strengthening US economy and the prospect of raising rates. That upward move gained momentum after Yellen confirmed this view Tuesday, despite the ongoing uncertainty surrounding inflation.

“Given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2%,” Yellen told her audience.

Those comments, supporting a Fed rate hike sooner rather than later, buoyed the US dollar. The British pound lost ground, as cable slid to below the $1.34 mark after trading above $1.35 in recent days.

US stocks also gained on the speech, while US president Trump’s address due Wednesday detailing planned US tax cuts, was also supportive. The President will unveil US tax reforms during a speech in Indiana.

The plan is rumoured to reduce the current number of tax rates – of which there are seven – to just three. The rates are reported to be, 12%, 25% and 35%. That higher tax rate is lower than the current higher rate of 39.6%.

However, while US equities indices are upbeat ahead of Trump’s speech, there are concerns it’s far from a done deal and that the reforms will spark much debate in congress.

The S&P 500 index closed up 0.01% Tuesday after briefly climbing above the 2,500 mark, earlier during the US trading day.

And, in other positive news for US investors, the price of West Texas Intermediate (WTI) oil rose late Tuesday, on news that US oil stock piles have fallen in recent weeks. 

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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