Published On: Fri, Aug 25th, 2017

Pound to US dollar: Sterling rises as Yellen Jackson Hole speech hits US currency


Sterling bounced by around 0.4 per cent against the American currency, as the chief central banker’s update at Jackson Hole was perceived by markets as dovish.

The euro also jumped against the US dollar as Ms Yellen took the opportunity to underline the importance of financial regulation since the financial crisis – but failed to give any hint of when US interest rates will rise again.

The comments also appear to be a warning as US president Donald Trump looks to scale back key bank laws.

America’s top stock markets the Dow Jones and S&P 500 jumped amid the weaker dollar.

Connor Campbell, financial analyst at Spreadex.com, said: “The Federal Reserve chief’s speech, perhaps unsurprisingly, failed to comment on the central bank’s future monetary policy plans.

“That absence itself was seen as dollar-negative and further softened up the currency, which had already been hit by an awful durables goods orders reading.

“With the greenback feeling grim the pound and euro could take half a percent off the currency apiece, in turn allowing the Dow Jones to post a rather sizeable rise, jumping 100 points to within touching distance of 21900.”

Ms Yellen told an audience at Jackson Hole: “Substantial progress has been made toward the Federal Reserve’s economic objectives of maximum employment and price stability, in putting in place a regulatory and supervisory structure that is well designed to lower the risks to financial stability, and in actually achieving a stronger financial system.

“Our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks, as has been illustrated during periods of market turbulence in recent years.

“Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad.”

Ms Yellen appeared to be on the side of increasing regulation, rather than rolling back.

She said: “I expect that the evolution of the financial system in response to global economic forces, technology, and, yes, regulation will result sooner or later in the all-too-familiar risks of excessive optimism, leverage, and maturity transformation reemerging in new ways that require policy responses.

“We relearned this lesson through the pain inflicted by the crisis.

“We can never be sure that new crises will not occur, but if we keep this lesson fresh in our memories, along with the painful cost that was exacted by the recent crisis, and act accordingly, we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly, sparing households and businesses some of the pain they endured during the crisis that struck a decade ago.”

Naeem Aslam, chief market analyst at Think Markets, said: “The Equity market has taken her speech as dovish and her comments about regulations gathered more attention.

“Gold has been all over the place on Yellen’s opening remarks as traders digested her comments.

“The overall tone of her remarks is dovish and this has helped the gold price.

“She does not want any aggressive changes to the financial regulations because that creates a threat to their monetary policy.

“However, she does not have much control or influence on this, so her comments don’t mean much.
 
“The weakness in the dollar pushed the euro dollar to day’s high which confirms our early view that dollar may continue to bleed and the euro has more room to move higher.”


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