Dovish comments from Fed Dudley triggers profit taking in the US dollar
After its spectacular gains in recent weeks, profit taking in the US dollar set in due to speculation that interest rates will remain low for a considerable time before the Fed tightens monetary policy. This was triggered by comments from Fed Dudley who warned that a strong dollar will make it harder to achieve the Fed’s two main objectives, of full employment and inflation around the 2% target, given that a strong currency will have consequences for growth and inflation. As such greater patience is required before interest rates are raised. Dudley also stated that the economy needs to run a little hot for at least some time to push inflation back to the target. Furthermore it was also reported that two Fed hawks on monetary policy, Fed Plosser and Richard Fisher are due to step down in March and April 2015 with only Jeffrey Lacker and Esther George remaining in the hawkish camp.