Today, Federal Reserve Chairwoman Janet Yellen announced that the Federal Reserve will likely raise interest rates this month. The announcement follows months of speculation regarding interest rates. The Fed believes our economy is in good health as it continues to recover from the Great Recession of 2008, with the unemployment rate reaching 4.8% this January.
Yellen, who spoke in Chicago ahead of the Federal Open Market Committee’s meetings scheduled for March 14 and 15 in Washington D.C., explained the reasoning behind the Federal Reserve’s decision, stating, “My colleagues and I generally anticipate that the neutral real federal funds rate will rise to its longer-run level over the next few years. This expectation partly underlies our view that gradual increases in the federal funds rate will likely be appropriate in the months and years ahead: Those increases would keep the economy from significantly overheating, thereby sustaining the expansion and maintaining price stability.”
Yellen’s comments could give investors faith in a recovering American economy, and over time may contribute to a strong US dollar. Yellen’s speech on interest rates rippled across the markets. Surprisingly, in the Forex world, the US dollar lowered slightly following Yellen’s announcement. The US dollar’s dip follows a week of gains for the currency. Earlier this week, the dollar rose to its highest value since January 11th, partly due to the likelihood of interest rates being increased.
Despite the lack of a dollar spike following Yellen’s announcement, the US dollar is finishing out the week with strength, as it has for much of 2017. The US dollar’s performance was partly influenced by Donald Trump’s address earlier this week, in which he emphasized economic recovery.
Pound and Euro Down
A euro rebound against USD was short lived today, as the euro inched closer to parity with the dollar. Some economists are speculating that euro will fall just above parity with the US dollar i the near future. Political uncertainty within the European Union continues to be a major contributor to the euro’s slump in recent months. GBP also performed sluggishly this week, following the U.K.’s House of Lords delay of the British government’s triggering of Article 50. Investors have shied away from the currency as uncertainty of Brexit continues to loom across the country.
Australian Dollar
This week the Australian dollar fell to a one-month low, partly due to the strength of the US dollar in the last few weeks. Also contributing to the ozzie’s lackluster performance is a smaller than anticipated trade surplus and lower priced commodities. Like the Canadian dollar, the value of the Australian dollar is largely tied to commodity prices.
Canadian Dollar
The Canadian dollar had its fourth straight day of losses against the dollar. Canada’s currency, driven largely by oil, has been affected by lower oil prices. An announcement by the Bank of Canada to leave interest rates unchanged, due to sluggish economic growth, also kept the currency from making gains this week.
