Yellen’s Employment Gains Note Pushed The Dollar UP

by on August 22, 2014 5:48 pm BST

The dollar gained on Friday after Federal Reserve Chair Janet Yellen cited jobs gains made during the five years of economic recovery while noting slack remains in the US labor market.

The speech by Yellen, a known policy ‘dove’, to an annual gathering of central bankers in Jackson Hole, Wyoming, cited persistent labor market slack but noted faster recovery in the sector could accelerate the timing of a Fed interest rate hike.

The greenback climbed to an 11-month high against the euro and a more than four-month peak above 104 yen versus the Japanese currency following Yellen’s speech.

Yellen acknowledged the slack in the U.S. jobs market as she called for a “pragmatic” approach to monetary policy that allows officials room to evaluate data without committing to a pre-determined rate path.

At the same time, she said the labor market may in fact be tighter than it seems and the Fed may have to raise rates sooner and faster than expected.

Higher interest rates tend to boost the allure of the dollar as they raise the yield on some U.S. assets.

The dollar rose as high as 104.18 yen JPY=, its highest since early April, and was last up 0.2 percent at 104.10 yen.

The euro, meanwhile, plunged to $1.3229 EUR= against the dollar, its lowest since September 2013. It last traded at $1.3230, down 0.4 percent.

For Joe Manimbo, senior market analyst at Western Union Business Solutions, Yellen seemed less concerned about low wage growth.

With Yellen’s speech out of the way, investors are focused on what European Central Bank President Mario Draghi will say at Jackson Hole later in the session. His speech will be scrutinized for any clues that euro zone policymakers are moving closer toward outright asset purchases, a scenario that would likely keep the euro under pressure.