Dollar pumped up by Yellen’s speech

The US dollar was on course for its best week since July, after Federal Reserve Chair Janet Yellen said she still expects the central bank to raise rates this year.
 
Last week the Federal Open Market Committee (FOMC) chose to leave interest rates on hold, stepping back from the first rise in almost a decade amid fears about China and global growth.
 
But speaking in Amherst, Massachusetts, Ms Yellen said she expects inflation to return to 2% over the next few years, as the effect on prices of a stronger dollar and low oil prices begins to subside.
 
“Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” she said. “But if the economy surprises us, our judgments about appropriate monetary policy will change.”
 
Her comments are consistent with those of several other FOMC members. Dennis Lockhart, president of the Atlanta Fed, said earlier this week he believed the phrase “later this year” is still operative in the context of raising rates. John Williams, president of the San Francisco Fed, said increasing rates before the year-end would be “appropriate”.
 
Jeffrey Lacker, the Richmond Fed president, voted in favour of raising rates at last week’s meeting, and has since restated his belief that the Fed ought to act sooner. He said, “an increase in our interest rate target is needed, given current economic conditions and the medium-term outlook,” adding that, “exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets.”
 
The upbeat sentiment was positive for the dollar, which rallied to its strongest since the middle of August against its major peers.
 
The Greenback posted multi-year highs against a range of currencies. It rose to an all-time high against the Brazilian real and hit its strongest level in 11 years against the Canadian dollar.
 
Meanwhile, Norway’s krone sank to its lowest point in 13 years against the dollar, after Norway’s central bank unexpectedly cut its key interest rate to an all-time low. Norges Bank cut its deposit rate by 25 basis points to 0.75%, and hinted at further reductions as the pressure of low oil prices continues to rock the Scandinavian economies.
 
“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out. The Board has therefore decided to lower the key policy rate now,” said Governor Øystein Olsen. “The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the coming year.”