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 Fed Chair Janet Yellen is likely to face questions on the state of
the labor market and the future pace of tapering when she appears
before the House Financial Services Committee at 10.00 a.m. ET. Her
testimony will be released at 8.30 a.m. ET.
Dealers said the latest betting was that while the tone was likely
to be upbeat on the economy, Yellen would emphasize that interest
rates were set to remain near zero for some time.
"The Fed will want to hold the market's hand as much as possible
over this period so they will be extremely keen to try and comfort
the market in any way they can," said Stewart Richardson, partner at
macro hedge fund RMG Wealth Management.
"At the moment this is taking the form of 'don't worry interest
rates will remain low for an extended period'."
Just that hope was enough to lift gold 0.7 percent to 1,283.70, just
off its highest level since mid-November, hit earlier in the
session. U.S. gold futures gained for a fifth day in a row, their
longest winning streak since August 2012.
The dollar fell to its lowest level in almost two weeks against the
euro and a basket of major currencies.
"(Yellen)'s known as a dove, but it's the first time the question
(arises) of whether she wants totally to continue this line from her
predecessors or shake things up," said Simon Smith, FxPro's head of
research. "I don't think she will (shake things up), but it's a bit
of a risk event for the dollar."
The FTSEurofirst 300 index of European shares rose 0.8 percent, with
strong updates from car maker BMW and measurement technology group
Hexagon adding to the positive sentiment.
The broader MSCI All-Country World Index was up 0.4 percent and U.S.
stock futures were also trading firmer with the S&P 500 e-mini
contract up 0.5 percent.
Oil prices also rose, with Brent crude edging above $109 a barrel.
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FED THEATER
Analysts have generally assumed Yellen will stick with the script
and reiterate that the Fed will continue to scale back its asset
buying as long as the economy improves as expected.
"The market is more ready to be relieved than to cheer on Yellen's
comments, which are expected to clarify uncertainties about the
Fed's tapering pace and interest rate hike plans," said Mirae Asset
Securities analyst Chung Seung-jae in Seoul.
"In the absence of a Fed meeting in February, her testimonies are
seen as the biggest risk event for the month."
One argument for staying the course on tapering is that bond
investors have learned to live with the idea after fears that
interest rates would rise led to bouts of selling last year.
Yields on U.S. 10-year Treasury paper have settled back at 2.67
percent, well below recent highs of 3.04 percent and less of a
threat to the housing market.
Investors, too, have accepted that tapering is not the same as
tightening and have pushed out the timing of the first actual hike
in the Fed funds rate. A move is not fully priced in until late
2015, a view Yellen is likely to endorse.
(Additional reporting by Wayne Cole in Sydney and Laurence Fletcher
in London; editing by Catherine Evans)
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