Fed Chair Janet Yellen sounds slightly more optimistic than last week. The changes may be very subtle, but they are enough to support the dollar. The greenback is already enjoying optimism that Congress will eventually pass a significant tax cut.
The greenback is gaining across the board.
Yellen’s prepared statement towards her testimony later on the Hill was released early. She says that the US economy has further strengthened this year. While she does repeat the stance that inflation may not be transitory, it seems that she is leaning more towards the “transitory” narrative.
She is also optimistic on the wages, seeing them increase with the improvements in the job market. Regarding policy, Yellen is in favor of using the interest rate tool rather than QE. The unwinding of QE, also known as QT, is progressing as expected.
Another dollar driver is US GDP: it was revised up to 3.3% from 3% annualized beforehand. This is good news that provides its own contribution to a rate hike next week. In his confirmation hearing, nominee Jay Powell said that the Fed is “coming together” to a rate hike in December.
Yellen and also Powell stressed that the Fed is not on a preset course and things may change of course. The changes are probably related to 2018. The Fed currently foresees 3 hikes while markets don’t buy it.
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