Dollar flexes ahead of Yellen's speech

September 26, 2017 10:15 AM

King Dollar flexed its muscles against a basket of major currencies during Tuesday’s trading session, as investors positioned ahead of Janet Yellen’s hotly anticipated speech in Cleveland later today.

Dollar bulls seem to be making a return, following hawkish comments from the Federal Reserve’s William Dudley on Monday. Dudley said that the central bank was still on track to gradually raise interest rates, since the issues that suppress inflation are “fading.” This was music to the ears of market players anticipating higher U.S. rates. With last week’s hawkish FOMC statement and these recent comments from Dudley boosting hopes of the central bank taking action this year, the dollar may remain supported in the short term.

Janet Yellen will be in the spotlight today, with investors closely scrutinizing her speech for further clues on rate hike timings this year. With the dollar falling into the category of currencies that have become quite sensitive to monetary policy speculation, volatility may be on the cards before and after Yellen’s speech.

From a technical standpoint, the bearish trend on the U.S. Dollar Index is at risk of coming to an end, if bulls are able to secure control above 93.50.

Brexit Season 4 set to punish sterling

Sterling found itself vulnerable to heavy losses on Tuesday, as Brexit uncertainty weighed heavily on the currency. A resurgent dollar also complimented the downside pressure, with the GBP/USD trading towards 1.3430 as of writing. With the EU and Britain entering a fourth round of Brexit talks, things could get messy, and may punish the British pound.  Although expectations of the Bank of England raising UK interest rates this year have heavily supported sterling, Brexit developments and ongoing uncertainty are likely to limit upside gains.

From a technical standpoint, the current price action suggests that bulls are exhausted, with bears in control below 1.3500. Sustained weakness below 1.3500 should encourage a further decline towards 1.3350.

Commodity spotlight – Gold

A resurgent dollar injected bearish investors with enough inspiration to send gold back towards $1300 during Tuesday’s trading session.

The volatile combination of renewed geopolitical tensions and fluctuating rate hike expectations, have made gold a battle ground for bulls and bears, which can be reflected in the erratic price action. Investors will direct their attention towards Yellen’s pending speech in Cleveland which may support rate hike expectations, consequently pressuring the zero-yielding metal further. Sellers seem to be making a move, with a breakdown back below $1300 encouraging a further decline towards $1280.

About the Author

Lukman Otunuga is an FXTM research analyst