Yellen Strikes More Hawkish Chord

As evidenced by Fed Chair Yellen’s more optimistic tone on Tuesday, the US Central Bank is likely to discuss raising rates during the upcoming March meeting of the Federal Open Market Committee.  In her most hawkish comments yet, she remarked that “waiting too long to remove accommodation would be unwise,” suggesting that more monetary tightening will be forthcoming.  However, in-line with other Fed officials, she maintained the position that any adjustments to policy would be largely data dependent.

Should inflation figures due later in the session come in hotter than expected, it could raise speculation further that March action is in play.  During her testimony she also briefly broached the matter of fiscal policy, stating that it was the predominant source of uncertainty for the outlook.  The dollar pushed higher on Yellen’s remarks, with USDCHF reaching the highest point since January.

Despite missing market expectations by a small margin, consumer price inflation in the United Kingdom sustained its most recent trend higher during January, with the headline price index rising by 1.80% on an annualized basis through the end of the month compared to 1.60% in December.  Core inflation remained on hold at 1.60%, with the predominant upside driver of the headline figure rising fuel costs.  This brought the measure to the highest point since June of 2014 in another sign that the Bank of England may actually need to tighten policy in the coming months depending if the measure rises further.

However, the monthly figure should give pause for caution, especially after inflation fell by -0.50% during January on the back of decreasing clothing and household goods costs.  In the meantime, the Pound continues to extend recent gains against the Yen, trending back towards 143.000.