The guidance for Janet Yellen’s testimony

Janet Yellen, the Federal Reserve chairwoman, is set to deliver her semiannual testimony to Congressional lawmakers on Wednesday and Thursday. Traders will be focused on her view regarding interest rate policy and on the timing of the Fed’s balance sheet wind down. In the latest FOMC meeting minutes, the Fed remained silent about the timing of reducing its reinvestment flows. There was a hint that Fed officials would like to announce the start of the process of trimming asset holdings in a couple of months. That is probably at their meeting in September.

Some analysts believe that Yellen’s testimony will narrow the gap between the Fed’s assessment of the policy outlook and what the what the market is currently anticipating. Investors have doubted the Fed will raise rates for a third time this year, giving just 49.1% odds for a December rate increase and less than 20% odds for a rate hike in precedent months.  

Which effect Yellen’s testimony may produce on the USD? This is a bit tough questions. It might happen that nobody would listen what Yellen tells about Fed’s tightening path. Some analysts believe that investors are currently more interested in whether other major central banks will step into tightening cycle or not. The US dollar traders have already got used to the Fed’s continuous hawkishness. So, their reaction to Yellen’s testimony, even if it is hawkish enough, will not produce great moves. In contrast, any signal of monetary policy tightening form the Bank of England, the ECB, or other major central banks would be well reflected in the currencies’ price movements.