US dollar, sterling firm as Fed's Yellen speaks

The US dollar and sterling are higher this evening on most other currencies, with chatter continuing on when the next US interest rate hike will come and lingering caution on the UK’s Brexit vote in June.

By 17:14 BST, sterling had turned in gains against commodity currencies and the euro, but was down against the yen and a rising dollar as Federal Reserve chair Janet Yellen started speaking at Harvard University.

She said it was "appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time,” adding that such a move would probably be appropriate in the coming months.

The markets are now looking ahead to her 6 June speech in Philadelphia.

Prior to this, the greenback had firmed against the commodity units and euro, but in contrast to sterling posted gains against yen, which has seen a run-up against the US unit since early May.

The dollar-index spot price was up 0.38% to $95.529. Sterling was down 0.18% and fetching $1.4643.

Markets have been consumed by when the Fed will raise rates next, and a raft of frequently hawkish jawboning from a stable of the central bank´s officials has seen speculation centre on June or July.

FXTM Analysis observed that concerns over slowing global growth and persistent China woes may also disrupt the Fed’s efforts to take action.

Capital Economics expected rising inflation to force a more aggressive tightening in 2017 than in 2016. “We agree that the Fed will probably only raise rates twice this year now.”

In the US, the Commerce Department’s second estimate of first-quarter gross domestic product was for a 0.8% rise at a seasonally-adjusted rate, up from the initial estimate of 0.5% but a touch below expectations of 0.9%.

Meanwhile, consumer spending was up 1.9%, in line with the initial estimate and outlays on new home construction rose at a rate of 17.1% compared to an initial estimate of 14.8%.

The University of Michigan’s consumer sentiment index printed at 94.7, down from the initial estimate of 95.8 but above the April reading of 89.0 and the May 2015 reading of 90.7.

Commodities were softer early Friday evening. West Texas Intermediate was down 0.55% to $49.21 a barrel, and Brent was off 0.85% to $49.17, both off recent highs.

Safe-haven gold was down 0.61% to $1231 an ounce and also below recent peaks.

“Gold stumbled towards nine week lows during trading this week following the painful mixture of dollar resurgence and growing hopes of a US rate hike which severely dulled the metals allure,” said FXTM analysis.

Finally, sterling’s rise today was unsurprising given the market’s increasing prediction that Britain will remain in the EU after it votes on 23 June.

“In general, opinion polls continue to indicate a close race, with 'remain' slightly ahead,” said Danske Bank Markets.