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Forex: Yellen gives dollar a helping hand ahead of key UK wage data

Yesterday and overnight saw a little pick up in volatility as a number of events stirred traders into action.  UK inflation data was much higher than expected causing a spike in GBPUSD back above 1.7100 and EURGBP to plunge back towards 0.7900, then Yellen did her best to maintain her dovish stance on the US economy by saying that stimulus is still a necessity but she admitted rates could rise earlier “if the labour market continues to improve more quickly than anticipated”.  Dollar bulls jumped on these comments which in turn reversed part of cable’s spike and then overnight the Kiwi suffered a shock sell off following some lower than expected inflation data.  NZDUSD continues its decline this morning trading at 0.8695 at the time of writing having rejected the major resistance level around 0.8800 and in the process forming a double top.  Fears that the RBNZ will delay interest rates are now mounting and the Kiwi has had the stuffing knocked out of it.

Overnight the better than expected Chinese GDP data has done little to excite the markets and the focus today will be back on Yellen as she completes the second and final part of her testimony.  So often a Federal Reserve Chairman has managed to say something that reverses the move in markets from the previous day, but maybe this time with a new person at the helm we can expect more consistency.

Before then sterling will be closely monitored with unemployment data out this morning.  The figure to watch here is average earnings, due to rise 0.8%, as this is a key component of how the Bank of England measures the state of the UK economy and influences their rate policy, probably more so than yesterday’s inflation number.

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