After a statement made by Federal Reserve Chairwoman Janet Yellen on Tuesday, March 29, 2016, the United States dollar has dipped in relation to many other world currencies. Her dovish comments over interest rate increases affected investor’s expectations. This is the second time in the month of March Yellen has surprised the currency market regarding interest rates.
In the speech given on Tuesday, March 29, she spoke about the global economy and its impact on the U.S. She stated that, due to uncertainty in the global economy, could pose a threat to the U.S. financial situation. She said this would justify slowing interest rate increases.
In the Fed’s policy meeting, which was held March 15-16, she surprised the currency market over interest rate rises. The Wall Street Journal reported following the meeting, the WSJ Dollar Index fell to the lowest level since June 2015.
When measured against the euro, the U.S. dollar has weakened. The Money magazine headline stated, “[The dollar is] on track to post its biggest quarterly percentage decline in 5 years.” As a result of the recent decline in the currency’s value, Money estimates the euro advanced to $1.14, which was the highest it has been against the dollar in more than five months.
It was not all bad, coming from the ADP National Employment Report, economists received some good news. In a Reuters poll, experts were forecasting estimates of 194,000 jobs being added by the private sector. The ADP Report showed that job creation exceeded expectations and nearly 200,000 jobs were created in March.
However, this job growth may not be enough to rebuild economic momentum. “It’s going to take more than one ADP number that was just okay to overcome Yellen’s dovish comments,” said President of EverBank World Markets, Chris Gaffney.
The U.S. dollar has dipped four percent in the first quarter when measured against a group of other currencies. Speculation over Yellen’s comments has made investing in American currency less attractive.
The chairwoman’s speech did have its positive points, however, Julian Jessop of Capital Economics told the Financial Times, “Ms. Yellen also acknowledged some upside risks, though these remarks were largely ignored.” He went on to also that the global financial markets will have to contend with the Fed’s tightening.
In established markets, the dollar had suffered as a result of the chairwoman’s speech. Money reports the currency measured 0.9592 Swiss francs. Meanwhile, the Australian dollar grew to a nine-month high of $0.7709.
The U.S. currency fell in comparison to emerging-market currencies as well. On Wednesday, March 30, The Wall Street Journal reported the currency dropped 0.8 percent against the Brazilian real. They also reported a decline of 1.5 percent against the rand of South Africa.
Unlike the American currency, reports show commodities are increasing. CNBC has reported gold is on the rise. In their report, they said gold’s rise on Thursday, March 29, as the U.S. currency fell could set it on course to reach its largest quarterly gain in almost 30 years. Gold has risen 16.5 percent in the first months of this year, making it the largest quarterly increase since 1986.
Prices of crude oil have also increased. Business Times reported Brent North Sea Crude and West Texas Intermediate showed increases since the Yellen’s speech. However, these gains may be short-lived. Bernard Aw, of IG Markets, told the Business Times, “[If oil] hinges on the U.S. dollar weakness, it is not going to go much higher.”
The dovish comments given by Yellen have caused skepticism in the U.S. dollar, which resulted in a dipped against other world currencies. This decrease had an impact on certain commodities and some, such as gold, have experienced record growth in the first quarter.
By Harrison Baker
Edited by Leigh Haugh
Business Times: Oil prices rise on weaker US dollar and inventory data
CNBC: Gold heads for biggest quarterly rise in nearly 30 years
Financial Times: Dovish Yellen sends S&P 500 to 2016 high
Time Money: Why the US Dollar Is Suddenly Worth Less This Week
The Wall Street Journal: U.S. Dollar Weaker Following Fed Chief’s Dovish Speech
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