Yellen sets hawkish tone for US rates outlook

Thursday, July 16, 2015

The dollar index rallied to a six week high as Fed chair Janet Yellen once again reaffirmed the central banks outlook for a 2015 rates rise. Delivering her testimony to the Senate Banking Committee the central banker signalled at improving economic confidence and a buoyant labour market for the decision to prime markets for an increase in US interest rates over the coming months. With the unemployment rate dropping to 5.3% in June, edging towards the Fed’s long term target rate of 5.0 to 5.2%, the outlook for the US economy continues to improve and apart from sluggish Q1 macro data which was largely blamed on adverse weather conditions growth in the US economy has been impressive with a positive outlook for H2 2015. The dollar index rallied above 97.30 against a basket of major currencies yesterday while activity early this morning has seen as extension of gains building on yesterday's close towards 97.40 early on.

Greek MPs voted in favour of the bailout agreement with 229 of the 300 members approving the terms that would need to be met in order to release as much as €86bn in rescue funds. 32 Syriza members opposed the bill and an embattled Prime Minister may struggle to maintain order within his party’s ranks. Now that Greek lawmakers have approved the deal, the focus will switch to the ECB as well as euro area creditors with the hopes of finally injecting much needed liquidity into Greece’s battered financial system. The ECB governing council is set to meet in Frankfurt later today to discuss whether or not the cap should be raised on emergency liquidity assistance and Germany’s parliament is due to vote on the bailout terms on Friday. Until the necessary 2/3 majority of eurozone members back the bailout terms we expect to see cautious trading in both the euro and regional equity benchmarks. Once the terms are approved then the truly hard task of bringing long term stability and prosperity to Greece will begin.

The pound sterling struggled to extend gains yesterday on mixed data as faster wage growth accompanied by an increase in jobless claims left policymakers scratching their heads on the potential timing for a UK rates rise. Bank of England governor Mark Carney had commented earlier this week that a rate rise was on the horizon, but with jobless claims increasing by 7000 in June against expectations of a 9000 drop and the ILO unemployment rate rising to 5.6% over the trailing three months to May, policymakers may once again adopt a cautious approach. However, it wasn’t all doom and gloom as average weekly earnings over the three months to May increased 3.2% y/y, its fastest pace since early 2010. With the MPC hawks becoming more vocal in recent meetings investors will be keeping a keen eye on data releases over the coming weeks and months as they try and gauge the timeframe for a rates rise.   

Dollar index pushes higher after recent consolidation

DXY Curncy DOLLAR INDEX SPOT 2015 07 16 07 58 09

GBP hesistates around 1.5640 against dollar after mixed labour market data

GBP Curncy British Pound Spot 2015 07 16 08 22 17

Average weekly earnings accelerate at fastest pace since 2010

UKAWMWHO Index Average Weekly E 2015 07 16 08 28 37

Events for today

1000

EZ

May

Trade Balance

1000

EZ

May

CPI

1245

EZ

Jul

ECB Rate

1330

US

w/e

Jobless Claims

1500

US

Jul

NAHB Housing Market Index

1530

US

w/e

EIA Nat Gas

OE: 

Aug  Crude WTI (NYMEX) 

Topics: ECB, EUR, DXY, GBP, Unemployment, Greece
More from: Kash Kamal