fell sharply on Friday, plummeting to fresh 10-week lows, after Federal Reserve chair Janet Yellen said it could be appropriate to raise short-term interest rates in the near future if incoming data in the coming weeks fulfills the expectations of the U.S. central bank.
The currency pair traded between 1.1111 and 1.1201, before settling at 1.1115, down 0.71% on the session. Since hitting nine-months in early-May, EUR/USD has fallen considerably by nearly 3%. Despite the recent pullback, the euro is still up sharply against its American counterpart over the last 12 months. Last year, during the last Friday of May, EUR/USD closed just under 1.10.
EUR/USD likely gained support at 1.1055, the low from March 15 and was met with resistance at 1.1434, the high from May 12.
The dollar rapidly appreciated on Friday afternoon after Yellen ostensibly supported a rate hike for the first time this year. Echoing hawkish sentiments from her colleagues on the Federal Open Market Committee over the last two weeks, Yellen said Friday afternoon that it for the Fed to approve an imminent rate hike if the economy and labor markets continue to show improvement. The FOMC has left its benchmark Federal Funds Rate at a targeted range between 0.25 and 0.50% in each of their three meetings in 2016, after in December.
"It’s appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said in a Question-And-Answer session with Harvard economics professor Gregory Mankiw.
Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
At the same time, Yellen noted that the unemployment rate nears the FOMC's long-term objective, even as wage growth and the level of part-time workers, marginally attached to the labor market remains soft. Yellen also blamed ineffective fiscal policy initiatives for leading to slower productivity growth.
“That’s a serious and negative development,” Yellen said.
Prior to her appearance, the U.S. Commerce Department revised prior estimates of higher by 0.3% to 0.8% on an annual basis, slightly below consensus forecasts of 0.9%. Though residential investment and exports helped drive growth, non-residential investment and government purchases continued to lag. In addition, soft personal consumption data could compel the Fed to adjust the timing of its next rate hike. In its latest estimates, the Commerce Department lowered the for the first quarter by 0.1 to 0.6% on a year over year basis. Analysts expected to see a flat reading of 0.7%.
revised prior estimates of first quarter GDP higher by 0.3% to 0.8% on Friday morning, slightly below consensus forecasts of 0.9%. Though residential investment and exports helped drive growth, non-residential investment and government purchases continued to lag. In addition, soft personal consumption data could compel the Fed to adjust the timing of its next rate hike. In its latest estimates, the Commerce Department lowered the GDP price index for the first quarter by 0.1 to 0.6% on a year over year basis. Analysts expected to see a flat reading of 0.7%.
Also on Friday, the University of Michigan's Consumer Survey Center said fell 1.1 points in May from the flash reading when it surged nearly 7 points to 95.8, the strongest monthly improvement in a decade. Despite the slight pullback, consumer sentiment is still at its highest level in more than a year.
The , which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.6% to an intraday high of 95.77, before settling at 95.73 The index is still down by more than 3% since early-December.
Yields on the rose two basis points to 1.85%, while yields on the fell one basis point to 0.14%.
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