Dollar sluggish ahead of Yellen's testimony

July 12, 2017 09:11 AM

The Greenback was neatly packaged and delivered to bears during Tuesday’s trading session, following reports of emails that show President Donald Trump’s eldest son met with a Kremlin-linked Russian lawyer prior to the U.S. general elections last November. This fresh revelation has added to the political uncertainty in Washington and may delay the proposed tax reforms & infrastructure spending plans. With the Dollar Index under intense selling pressure on the daily charts, Dollar bullish investors are likely to search for fresh inspiration to support prices from Janet Yellen’s Congress testimony later today.

Yellen is scheduled to testify on the economy before the House Financial Services Committee this afternoon; her remarks will be closely scrutinized for clues on when the Federal Reserve plans to raise rates. While markets expect Yellen to reiterate her hawkish remarks and upbeat outlook on the U.S. economy, this may not be enough to support the U.S. Dollar. Investors not only need fresh insight on when the Federal Reserve plans to raise rates but also require greater clarity on the timings and magnitude of the balance sheet reduction. It will also be very interesting to hear Yellen’s thoughts on falling inflation rates and tepid wage growth, and how these may impact the Fed’s path to monetary policy normalization.

A situation where nothing new is brought to the table may punish the vulnerable Greenback further. From a technical standpoint, the Dollar Index is pressured on the daily charts. A breakdown below 95.50 may open a direct path towards 95.00.

Sterling gifted a lifeline
Sterling bulls were offered a lifeline on Wednesday following a mixed UK employment report that slightly eased some Brexit-related concerns. The UK employment market continued to display resilience against Brexit, with the unemployment rate falling to 4.5% for the three months to May, marking a landmark 42-year low. Despite the encouraging jobs picture, wage growth disappointed, signaling another fall in total earnings. With inflation outpacing wage growth, British consumers are seeing their spending power diminish and as such, may fuel concerns over the longevity of the UK’s consumer-driven economic growth. This simply takes us back to the question - will the Bank of England be willing to raise interest rates during such fragile economic conditions? Markets may pay very close attention to the UK’s macro fundamentals, political developments in Westminster and Brexit talks for further clues on what actions the BoE may take.

About the Author

Lukman Otunuga is an FXTM research analyst