United States dollars whipsaws on Yellen's mixed messages

Reuters

US stock benchmarks are mixed, with the Dow Jones Industrial Average DJIA, -0.01% on track to extend a four-session skid, while gold futures GCZ7, -0.86% perceived as a haven asset saw a firm drop below $1,300 an ounce.

Ellen Zentner, chief economist at Morgan Stanley, says her biggest takeaway from the Cleveland speech was Yellen's confidence that "a strong USA labor market would ultimately drive inflation closer to the Fed's two percent goal over the next few years".

During her speech, Yellen focused on the uncertainty with inflation and monetary policy, stating that it would be, "imprudent to keep monetary policy on hold until inflation is back to 2 percent".

The euro weakened against other currencies as well, hitting a 10-week low against the British pound EURGBP=D3 and a two-week low of 1.14075 Swiss franc EURCHF=R. "So we do see lower [prices] predicated exclusively due to the monetary tightening by the Fed in the U.S". The much-anticipated tax reform package is expected to be presented during a speech in Indianapolis, at 3 p.m. ET.

Asian stock markets were mixed on Wednesday as investors awaited the outlines of USA tax overhaul plans by President Donald Trump while news headlines on geopolitical tensions surrounding North Korea have quieted. Trump has praised Yellen since taking office, saying he approves of the Fed's current low interest rates and respects the chair.

Investors also sold their holdings of government paper after Federal Reserve Chairwoman Janet Yellen on Tuesday outlined the Fed's reasoning for an additional rate increase this year.

"While suggesting that the FOMC generally views the soft inflation numbers as transitory, she again gave credence to the notion that there is something structural going on in the economy that the Fed has yet to fully understand, which would warrant caution regarding the pace of hikes", says Royce Mendes, an economist at CIBC Capital Markets.

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The U.S. dollar extended overnight gains after touching a one-month high following Yellen's comments.

The S&P 500 finished little changed at 2496.84, while the Dow Jones Industrial Average declined 11.77 points, or 0.1%, to 22,284.32.

The deterioration in South Africa's institutional strength, a key issue also for rating agencies, was reflected in the country's 14-point drop in the World Economic Forum's Competitiveness Index released on Wednesday.

-The MSCI Emerging Market index sank 0.8 percent to the lowest in more than a month. The tech-heavy Nasdaq Composite advanced 9.57 points, or 0.1%, to 6,380.16, recouping a fraction of losses from the previous session.

-The euro sank 0.5 percent to $1.1792, the weakest in five weeks. ICE Brent crude for November settlement fell 87 cents, or 1.5%, to $58.15 a barrel.

CURRENCIES: The dollar rose to 112.41 yen from 112.23 yen.

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