Article Highlights

  • U.S. NFIB small business index ticked up from 105.8 to 105.9
  • U.S. Jan headline PPI up 0.6% vs. 0.3% consensus
  • U.S. Jan core PPI up 0.4% vs. 0.2% expected
  • Fed head Yellen hints at potential March interest rate hike
  • Yellen: “Waiting too long to tighten would be unwise”
  • Yellen: “Every FOMC meeting is a live meeting”
  • FOMC member Kaplan: Fed should hike sooner rather than later
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Dollar domination! Fed head honcho Janet Yellen was the star of the show as she confirmed that a March rate hike is possible while other U.S. central bank officials supported her view.

Major Events:

Fed Chairperson Yellen’s speech – During her semi-annual testimony in Senate, Fed head Janet Yellen highlighted the progress that the U.S. economy has made in terms of achieving their goals of price stability and maximum sustainable employment. Most market watchers had expected her to have a few cautious remarks on slowing average hourly earnings, but she sounded confident that the steady improvement in the labor market could keep wages supported.

Because of that, Yellen mentioned that a rate hike will be appropriate in one of their upcoming meetings as long as employment and inflation evolve stay on the right track. She also expressed their commitment to interest rate hikes this year, adding that waiting too long to tighten would be unwise. She also talked briefly about fiscal policy, although she noted that it’s still too early to speculate on what plans might be put in place and how these could impact overall growth, but shared that she hopes it would be consistent with keeping the economy on a sustainable trajectory. Read the full text of her speech here.

Hawkish remarks from other Fed officials – Three Fed officials also gave testimonies during the latest session but only one of ’em is actually a voting member. Still, it’s worth noting that the general sentiment in the central bank is that rates should be hiked sooner rather than later.

For FOMC voting member Kaplan, growth this year is going to be pretty strong and that the jobs market is getting relatively tight with inflation nearing the 2% target. He added that the Fed should be a little less accommodative throughout the year if this kind of performance continues. Meanwhile, non-voting member Lacker said that he is seeing a compelling case for a March hike and Lockhart affirmed that three interest rate hikes this year are possible.

Upbeat U.S. data – Economic reports from Uncle Sam underscored the Fed’s hawkish views, as producer prices beat expectations and reflected stronger inflationary pressures down the line. Headline PPI picked up by 0.6% versus the projected 0.3% gain while core PPI rose 0.4% compared to the estimated 0.2% uptick.

Components of the report indicated that the pickup was mostly driven by higher prices of final demand goods, buoyed largely by rising energy prices. The NFIB small business index ticked up from 105.8 to 105.9 in January to indicate stronger confidence in the sector instead of dropping to the projected 105.1 figure.

Major Market Movers:

USD –  Renewed March rate hike expectations propped up the U.S. currency, which has also drawn support from upbeat data and anticipation for Trump’s “phenomenal” tax reform plan.

EUR/USD tumbled from 1.0628 to a low of 1.0555, USD/JPY popped up from 113.38 to a high of 114.55, GBP/USD is still cruising above 1.2450, and USD/CHF rallied from 1.0037 to 1.0085.

Watch Out For:

  • 11:30 am GMT: Australia Westpac consumer sentiment
  • 12:30 am GMT: Australia new motor vehicle sales

See also:

London Session Recap

Asian Session Recap

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