FXStreet (Córdoba) - Ulrich Leuchtmann, analyst at Commerzbank, notes that the FX market displayed a notable reaction to Fed Yellen testimony this week, a fact that is quite remarkable following times of continuously falling volatility. He attributes this mainly to prospects of normalisation of US monetary policy, which at the same time supports a dollar appreciation.

Key Quotes

“Two factors are likely to have been decisive for this development: Mrs Yellen had such a dovish reputation that even a neutral statement comes as a surprise. The normalisation of US monetary policy is progressing so notably that the markets are increasingly pricing a return to normal circumstances in the US”.

“The second factor in particular is likely to influence exchange rates in the future, which is why we feel confirmed in our view of a (initially slow but then increasingly rapid) dollar appreciation”.

“The US dollar is increasingly benefiting from the increasingly certain prospect of a normalisation of US monetary policy. Fed signals pointing in this direction are becoming increasingly important for the FX market – even if they should not come as much of a surprise”.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.