Good day forex traders.
I would like to report on an interesting development with potential impact on the EUR/USD. While currency movements are often sentimental in nature, it is the fundamentals that usually shape the perceptions.
BBC reported that the US Federal Reserve chair commented on the possibility of an interest rate hike soon.
“US Federal Reserve chair, Janet Yellen, has said it may be “appropriate” for the central bank to raise interest rates at one of its upcoming meetings.
The bank’s next meeting on monetary policy is on March 14 and 15.
Speaking to Congress she said delaying rate hikes would be “unwise”, and could leave the Fed having to move too fast later, risking causing a recession.
In December the Fed raised its benchmark interest rate by 0.25%, only the second increase in a decade.
It had kept its main lending rate near zero for seven years. before raising it in December 2015 and again last December.
Addressing Congress for the first time since Donald Trump became president, Ms Yellen again repeated that although the Fed expects to raise rates gradually, getting them back to normal levels was important.
She added: “Waiting too long to remove accommodation would be unwise, potentially requiring [the Fed] to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.
“At our upcoming meetings [we] will evaluate whether employment and inflation are continuing to evolve in line with [the Fed’s] expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.” ”
There are analysts who believe that this is the precursor of an interest rate hike in March. As mentioned often and in our forex school, a higher interest rate usually drives demand for the currency. In this instance, it would be the US dollar. Hence if this plays out as expected, we may see further dips for the EUR/USD currency pair.