Friday November 18, 2016 - 23:16:11 GMT
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Double-Edged Sword: Yellen And Trump Drive Dollar And Bond Yields Higher
John M. Bland, MBA
Fed Chair Yellen Confirms Rate Hike
In testimony to a joint committee of the House and Senate, Fed Chair Yellen signaled that the central bank will likely be hiking its Fed Funds target by 25bps to a range of 0.50% to 0.75% on December 14. Although she was not explicit, in the context of her testimony the markets interpreted her comments as a clear rate hike signal. A rate hike had not been in doubt even before Donald Trump had beaten Hillary Clinton for President. However the view at that time was that it would be "one and done" because they felt Clinton would not be pursuing a strong pro-growth agenda. Yellen indicated on Thursday that future policy decisions would depend upon future data. In other words, the door is now potentially open to a faster pace of policy tightening.
The markets took the Yellen testimony as a signal to push the USD higher in its lead forex relationships against the EUR, JPY and GBP. In her testimony the Fed Chief also reasserted her view that Fed independence was critical and voiced her support for the Dodd-Frank law. Both of these items have been raised as issues by President-elect Trimp in his election campaign. Yellen also expressed her intention to serve her full term which does not end until early 2018.
This week Markets have been having some difficulty knowing how to react to incoming U.S. economic data. It is especially difficult for some in overseas market who are unaware of how the the transition of power takes place in the States. For now markets are trading on data collected before the Trump presidential victory. At that time the economy was showing mixed signs of improvement. We are now moving into a kind of limbo, as the U.S. government is almost in a caretaker status. The Trump administration will not be installed for another two months. The Trump inauguration is on January 20, 2017. Until that time, major legislation is unlikely to be enacted. As for the new executive branch of the government, we still know little about who will be in his cabinet. On the other hand, the outgoing administration might have to come to grips with a USD rising at an unacceptably rapid pace.
The front end of the week ahead will be very active for U.S. data before the U.S. Thanksgiving break on Thursday and Friday. a major focus will remain the formation of the new Trump cabinet.
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WEEKLY HIGH IMPACT NEWS:
No Major Data
13:30 CA- Retail Sales
15:00 US- Existing Homes Sales
00:00 flash Mkt & Service PMIs
13:30 US- Durable Goods
13:30 US- Weekly Jobless
15:00 US- New Home Sales
15:00 US- final University of Michigan Survey
15:30 US- EIA Crude
19:00 US- Fed Policy Minutes
00:00 JP/US- Holiday
09:00 DE- IFO Survey
09:30 GB- GDP
14:45 US- flash Service PMI
16:00 US- Early Close
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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