U.S. Dollar Posts Huge Weekly Gain after Yellen says Rate Hike “appropriate relatively soon.”

The U.S. Dollar was the big winner last week with December U.S. Dollar Index futures posting a solid 4.32% gain. The strength in the Greenback was primary fueled by a surge in U.S. Treasury yields. For the month of November, 30-Year U.S. Treasury Bond yields are up 0.43% at 3.01%. The benchmark 10-Year U.S. Treasury Note yield is up 0.51% at 2.34%. Most of the rise in yields has occurred since November 8, following the election of Donald Trump as president.

The chances for a December rate hike increased with the release of stronger-than-expected retail sales, building permits and housing starts. Core CPI came in unchanged at 0.4% and the weekly unemployment claims hit their lowest level since 1973 at 235K.

Fed Chair Janet Yellen made her strongest comments to date for a policy tightening in December, telling Congress an increase could be “appropriate relatively soon.”

Yellen also warned the Joint Economic Committee of Congress of the dangers of waiting too long, which could result in the Fed moving too quickly in the future.

“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals” on inflation and jobs, Yellen said. “Moreover, holding the federal funds rates at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

USD/JPY

The strong U.S. economic data combined with Yellen’s comments helped boost the U.S. Dollar/Japanese Yen. The USD/JPY finished the week at 110.908, up 4.293 or +4.03%.

In economic news, Japan’s 3^rd quarter preliminary GDP beat expectations, expanding for a third straight quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable economic recovery.

The economy expanded by an annualized 2.2 percent in the third quarter, a faster pace than the 0.9 percent increase estimate. During the previous quarter, the economy grew by 0.7 percent.

AUD/USD

In Australia, weak economic news combined with rising U.S. Treasury yields and hawkish comments from the Fed’s Yellen, helped make the Australian Dollar a less desirable investment. The AUD/USD finished the week at .7332, down 0.0211 or -2.80%.

In domestic news, the meeting minutes from the Reserve Bank of Australia (RBA) were supportive for the Australian Dollar, but that support quickly eroded when the U.S. Dollar strengthened.

“In considering the stance of monetary policy, members noted that the run of international and domestic data over the past few months had been consistent with earlier expectations and there has been little change to the forecasts since they were presented in the August Statement on Monetary Policy,” the minutes of the November 1 RBA meeting showed.

Australian employment data was mixed. The headline Employment Change came in at 9.8K, below the 20.3K estimate. The Unemployment Rate was 5.6%, below the 5.7% estimate. The Australian Wage Price Index increased 0.4%, below the 0.5%. This prompted some investors to say that the RBA may have to consider another rate cut sooner-than-expected.