Above: Image from Janet Yellen’s file. Image courtesy of the Federal Reserve.
The dollar remains well supported after comments made yesterday by a senior US official who warned of the need to raise US interest rates to prevent overheating of the economy.
The dollar rallied and stocks fell after US Treasury Secretary Janet Yellen said a “very modest” increase in interest rates at the Federal Reserve may be required for the foreseeable future.
“It may turn out that interest rates will need to rise slightly to keep our economy from overheating, even if the additional costs are relatively small compared to the size of the economy,” she said.
The US Federal Reserve made it clear in the last week of April that it is not considering raising interest rates until the US labor market improves significantly.
Yellen’s intervention challenged the Fed’s recommendations, creating the necessary uncertainty for investors to sell shares and buy the dollar.
“On the foreign exchange market, US Treasury Secretary Janet Yellen said US interest rates may need to be raised to prevent overheating of the US economy, prompting some coverage of short positions in the US dollar amid general risk aversion in the markets.” – says Roberto Mialich. , Currency strategist in UniCredit Bank in Milan.
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The exchange rate of the euro against the dollar fell 0.42% on Tuesday, and in the middle of the week in trading the pair is holding slightly above the level of 1.20.
“However, the fall in 10-year UST yields below 1.60% likely prevented more intense dollar purchases,” Mialich says.
Yellen appeared to have reacted to her comment later Tuesday by saying in a separate event that she did not want to pressure the Fed.
“This is not what I predict or recommend,” Yellen said during an online event hosted by the Wall Street Journal. “If anyone appreciates the independence of the Federal Reserve, I think it’s me.”
This clarification helped to calm the nerves of the market and curb the strengthening of the dollar.