Fed Comments & Chinese Actions Trouble Currency Speculators

The US dollar traded mixed on Monday as investors and analysts tried to decipher comments from Federal Reserve speakers, Fischer and Lockhart. Mr. Fischer the news member of the Fed as well as the Deputy and right hand of Janet Yellen, seems to have masters Fed speak like a pro.  Fed speak is almost a different language as professional traders try to understand and interpret every word from the Fed, most never reach consensus on what the Fed actually said and the Fed never commits to anything.

Full employment is nearly within reach, but low inflation means it’s not yet time for the central bank to raise interest rates, Federal Reserve vice chairman Stanley Fischer said yesterday. “We’re in a situation with very low inflation, nearly full employment, but very low inflation,” Fischer said in an appearance on US national TV.

“We’re not going to be as low as we are now forever, and we need to be looking ahead as we go,” he added. “Having said that, the data have to drive us and we have to ask ourselves where we are.”

Some of the gap is due to factors that are likely to recede as the year goes on, Fischer said, such as the steep drop in the price of oil last year. But even stripping out the effects of energy and food prices, core inflation was 1.3 percent in June. Many central banks’ target a certain level of inflation. The Fed, however, has a dual mandate of both full employment and stable prices.

On the employment mandate, Fischer said, the Fed is doing “just fine.” “The concern about this situation is not to move before we see inflation as well as employment returning to more normal levels,” he said, explaining in part why the Fed did not raise its interest rate target at its June meeting.

The US dollar climbed on Tuesday morning to trade at 97.48 as the move by Chinese authorities to devalue the Yuan confused markets. The People’s Bank of China allowed the yuan to depreciate by nearly 2% against the U.S. dollar on Tuesday, the result of a surprise policy change that roiled international currency markets. The central bank said in a statement that it had decided to let market forces play a larger role in the country’s currency markets, and announced a major change in how the yuan’s daily “fix” or “midpoint” will be calculated.

In a speech Monday afternoon, Atlanta Fed president Dennis Lockhart said “I think the point of liftoff is close,” even if there’s no “foreordained date.” Mr Lockhart, a voting FOMC member this year, told the Atlanta Press Club that “the incoming numbers will dictate the timing of the decision.” In their statement after their July meeting, Fed officials said they believe an increase will be warranted once there has been “some further improvement in the labour market.”

A Labor Department report on Aug 7 showed employers added 215,000 jobs last month, in line with the 211,000 average monthly gain so far this year. The jobless rate held at 5.3 per cent, average weekly hours inched up and the underemployment rate edged down. The August jobs report is scheduled to be released Sept 4.

The euro is trading in the red against the stronger US dollar at 1.0965 as Asian currencies felt the stress of the Chinese moves. The Aussie is down 79 points at 0.7333 and the NZD dipped 66 points to 0.6554.