Hike probabilities up, since Yellen’s speech last night

Market expectations have firmed since FED chair Janet Yellen's speech last night, in which she indicated economic conditions may be ripe enough for a rate hike by US Federal Reserve.

According to Ms. Yellen,

• US economy is expected to grow at moderate pace, which should be sufficient for additional increase in employment and push inflation higher towards FED's longer run objective of 2%.

• Drag to the economy from stronger Dollar, lower oil price souring outlook of US oil industry, weaker growth in foreign economies are likely to diminish over next couple of years.

• Outlook has improved over emerging markets, especially China. FED now expects slowdown to be modest and gradual and notes that China can do more to stimulate the economy, adding to the measures already done this year.

• Effect of lower import and energy prices, dragging inflation will diminish next year and inflation is expected to rise to 2% target over next few years.

• Yellen reiterates that US economy has improved substantially but FED will keep interest rates accommodative enough and below longer run average. Any hike would be gradual.

• Neutral rate, which is neither expansionary nor contractionary is low for US, hence rates are likely to be below longer run average.

Implied rate hike probability and Dollar have firmed post remarks. Market is now pricing 74% probability of a hike in December and 40% probability of another hike in June.

FXCM Dollar index is currently trading at 12195.