Fed Chair Yellen faced something of an impossible task yesterday and the fact that the dollar is net-net little changed vs. levels prior to her testimony reflects that. Yes, the dollar did see some moves, but this was more down to position adjustment, with many having held back until the major event of the week was well under way. Ultimately, the Fed implicitly acknowledged that the outlook was less certain since the December tightening of rates, but was not willing to countenance the possibility of a reversal this year. But overall, as I suggested, the Fed is currently in a situation where it can do little to counteract the risk aversion in markets currently being seen.
As the world worries about the impact of negative interest rates, the Swedish Riskbank is the undoubted expert and has plunged their key rate further into negative territory this morning, cutting from -0.35% to -0.50%. The market was fairly split on the possibility of a move, so the Swedish Krone has reacted negatively in the wake of the decision, EURSEK moving to the 9.60 level in early trade. We’re also seeing the yen plunge further, through the 112.00 level, having been at 116.00 just 1 week ago. The BoJ’s move to negative rates (on proportion of reserves) looks a distant memory now, with the BoJ no doubt frustrated with the yen’s behaviour since that time. But the dollar is gaining against the Aussie and sterling in early European trade, reflecting the fact that the FX market has become more complex in its dynamics and the dollar is far from a simple risk or policy play. No key data releases for today beyond the usual US weekly claims data at 13:30 GMT.