U.S. Dollar Reverses Course on Fed Comments, Finishes Higher for Week

September U.S. Dollar Index futures posted an inside move, higher close last week, finishing at 94.455, up 0.972 or +1.03%. The price action suggests a possible shift in investor sentiment and impending volatility.

Was Yellen Hawkish or Dovish?

Friday’s price action featured a volatile, two-sided trade with the markets initially reading Fed Chair Janet Yellen’s speech before central bankers at Jackson Hole, Wyoming as slightly hawkish then shifting to dovish after traders determined she did not say a rate hike was imminent.

Yellen essentially said improvements in the U.S. labor market and expectations for moderate economic growth have boosted the case for a rate rise, supporting what futures traders have been anticipating for a while. Futures markets are still pricing in a 24-percent chance of a rate hike in September and a 57-percent chance of a rate hike in September.

Markets React to Fed Vice Chair Stanley Fischer

With Yellen’s comments producing a two-sided trade, it was up to Fed vice Chair Stanley Fischer to finally drive the U.S. Dollar higher. Fischer put the focus on next week’s August jobs report and forward data. He noted that the economic data had strengthened with the strong jobs growth in the last three months. His comments turned stocks lower and the U.S. Dollar higher.

U.S. New Home Sales Jump

In other U.S. economic news, New Home Sales surprisingly beat expectations with a jump of 654K units. Traders were looking for an increase of 575K. Durable Goods Orders rose 4.4% in July versus an expected increase of 3.3%. However, U.S. economic growth was a bit sluggish in the second quarter with gross domestic product up only 1.1% compared to the 1.2% estimate.

The EUR/USD finished at 1.1193, down 0.0128 or -1.13%. Most of the loss by the Forex pair was attributed to the strength of the U.S. Dollar after Yellen’s speech and Fischer’s comments.

Optimistic Euro Zone PMI, but …

In economic news, August flash PMI indicated that the Euro Zone remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by “Brexit” uncertainty. The flash estimate of the Markit Euro Zone PMI came in at 53.3, up from 53.2 in July. This marked a seven-month high.

German Ifo Report Posts Steep Drop

On the negative side, business confidence in Europe’s biggest economy, Germany, fell unexpectedly after the U.K. Brexit vote. The Ifo business confidence index fell to 106.2 points for August from 108.3 in July. It was the steepest fall in more than four years and took the index to its lowest since December 2014.