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11 Feb 2014
Yellen testimony: Cautious, but Q&As will be under scrutiny
FXStreet (London) - Newly-installed chairman of the US Federal Reserve, Janet Yellen, has kicked off her leadership of the central bank with a bland and unsurprising testimony before the House financial services committee.
But while the wording of her testimony was cautious, there seems to be some residual hope that she will ramp up her dovish tone in the subsequent Q&A, leaving the door open for a slowing of quantitative easing tapering if economic conditions deteriorate.
In pre-released remarks, Yellen has said that the Fed is likely to stay the course on the tapering of its now USD65bn a month asset purchase programme.
Yellen forecast that the US would see moderate economic growth through 2014, but stated that recovery in the labour market is far from complete. Yellen takes over as Fed chairman following two months of below-expectation US non-farm payroll numbers, and nodded to the fact that while there has been some broad strengthening of headline jobs numbers, the quality of the US labour market remains mixed, with high numbers of underemployed workers or workers holding down multiple part-time jobs.
Market reaction
Initial reaction to the pre-released Yellen testimony saw a whipsawing of USD/JPY, initially jumping to a high of JPY102.6630 before swinging back to JPY102.13 and then regaining ground to pre-announcement levels.
Stocks initially fell on the testimony, but have since recovered. The S&P fell from 1,806.45 to 1,803.68 on the release, but has recovered to 1,805.16, up 0.3 percent on the day.
Gold remains up 0.45 percent on the day at USD1,280.53, with concerns that continuing Fed tapering may add to pressure on EMs. The precious metal has seen some strong support this year as a result of EM market fragility and its position as a haven asset and a store of value.
But while the wording of her testimony was cautious, there seems to be some residual hope that she will ramp up her dovish tone in the subsequent Q&A, leaving the door open for a slowing of quantitative easing tapering if economic conditions deteriorate.
In pre-released remarks, Yellen has said that the Fed is likely to stay the course on the tapering of its now USD65bn a month asset purchase programme.
Yellen forecast that the US would see moderate economic growth through 2014, but stated that recovery in the labour market is far from complete. Yellen takes over as Fed chairman following two months of below-expectation US non-farm payroll numbers, and nodded to the fact that while there has been some broad strengthening of headline jobs numbers, the quality of the US labour market remains mixed, with high numbers of underemployed workers or workers holding down multiple part-time jobs.
Market reaction
Initial reaction to the pre-released Yellen testimony saw a whipsawing of USD/JPY, initially jumping to a high of JPY102.6630 before swinging back to JPY102.13 and then regaining ground to pre-announcement levels.
Stocks initially fell on the testimony, but have since recovered. The S&P fell from 1,806.45 to 1,803.68 on the release, but has recovered to 1,805.16, up 0.3 percent on the day.
Gold remains up 0.45 percent on the day at USD1,280.53, with concerns that continuing Fed tapering may add to pressure on EMs. The precious metal has seen some strong support this year as a result of EM market fragility and its position as a haven asset and a store of value.