FX Roundup: Yen spikes, euro falters after Yellen comments

In prepared remarks for her semi-annual testimony to Congress on US monetary policy, Federal Reserve Chairwoman Janet Yellen said the slowdown in China could weigh on the US and the outlook for inflation is falling.

“Financial conditions in the US have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar,” she added.

Without stating it specifically, her remarks were seen to suggest the next hike to interest rates may be a long way off.

However, Ian Sheperdson, chief economist, Pantheon Macroeconomics, noted: “Fed Chair Yellen's Testimony does not close the door to a March rate hike, given that the meeting is still more than a month away, but if the committee loses its nerve in the face of continued market volatility, no-one will be able to say they are surprised.

"The March decision will depend on the labor market data, which in all likelihood will signal the need for higher rates, and a host of market developments and non-labor data, which likely will not. We're sticking to our 55/45 call in favor of a March hike, but it will be close either way."

At 1714 GMT, the dollar was down 1.09% against the yen at JPY113.850. The euro was down 0.46% against the greenback exchanging at $1.1241, while the pound was broadly flat at $1.4472.

Olivier Korber, analyst at Societe Generale, said, “On the one hand, EUR/USD remains supported by risk aversion and the US Federal Reserve leaning to the dovish side. Brexit concerns are to the fore in the UK. The European Council meeting on 18-19 February could prove pivotal to finding a mutually satisfactory solution. In that event, the referendum could be held as soon as June.

“Our previous Brexit hedge targeted a fourth quarter referendum and is already in the money. A more tactical approach may now be appropriate in the current context of acceleration.”

Elsewhere, the Australian dollar rose 0.27% against the greenback exchanging at US$0.7089, while the New Zealand dollar rose 0.33% exchanging at US$0.6658. Going the other way, the greenback rose 0.74% against the Canadian dollar exchanging at CAD$1.3970.

The dollar’s rise was echoed in Latin America, with the greenback up against major regional crosses, including the Chilean (up 0.07%), Mexican (up 0.38%) pesos and the Brazilian real (up 0.92%).