Dollar Down on Yellen Testimony

The US dollar slumped Wednesday on expectations of dovish testimony from Yellen at Thursday's confirmation hearing. The comments were released early and led to a slump in the dollar. The pound was the best performer on the day after Carney said the recovery was taking hold.  

Yellen said the economy and labor market are performing far short of potential and the Fed has more work to do. Some market watchers interpreted that as saying the economy must improve before the Fed tapers but that's a stretch. She said a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and asset purchases.

The word 'ultimately' probably dims faint hopes for a December taper but it don't kill the chance of action in early 2014 and remember that Yellen is speaking for herself, not the FOMC.

The main event for Yellen will be the grilling she gets from Congress. Yellen is well-known for reading from a script so the risks are high as she is forced to ad lib. The moves in the past 6 hours could be unwound if she doesn't deliver an ode to printing.

An impressive move on the day came from cable as it rallied as high as 1.6065 from 1.5885 in the largest jump in nearly a month. Strong claimant count data and upbeat comments from Carney drove the rally. It was given fresh life by broad US dollar weakness. Retail sales data on Thursday is the next major hurdle for the pound.

Up later, Japan releases its first reading on third quarter GDP and they're expected to show a sharp slowdown from Q2 when the economy grew at a 3.8% annualized pace. The consensus estimate is for a 1.7% pace but estimates range from 0.3% to 2.8%. A reading near the extremes could spark a reaction in yen crosses.