Yellen calmed markets down by delivering a surprisingly hawkish speech last week. She said that she is in favor of raising interest rates this year. We have seen a huge sell-off on global equity market early last week week amid concerns that economic and financial turmoil may slow economic growth. Additionally, the US currency has been backed up by recovering equities as well with automaker advancing off the lows. A strong dollar is not helping gold prices although oil was trading higher on Friday.
Thursday Yellen made it pretty clear that the hike later this year was a baseline scenario for her, currently low inflation is caused by a strong dollar and low energy prices (both factors having only a temporary impact on a long term inflation) and households inflation expectations are stable. That has sent EUR/USD back to 1.11, which has rebounded to vicinity of 1,1200 at the end of US session.
The third and final revisions of US GDP data proved to be be stronger than expected. Since the first release of economic growth for Q2, the data was raised sharply from 2,3% initially towards 3,9% q/q in annualized terms. Such print - combined with the revisions of earlier release - prove that the weaker growth in Q1 was only due to transitory effects (harsh winter and east cost strikes among them).
However it’s not only the main print that proved to be better than expected, but also the personal consumption as well as Core PCE overshoot the consensus.
Oil price rebounded again Friday and further contraction of rig count in the US was seen , which might confirm a belief that fundamental rebound takes place on the oil market.
At the end of the session on Friday Wall Street turned down, due to biotechnology sell-off, which tumbled more than 5%, leaving a gauge for this sector poised for a bear market.