Research Team at BBH, notes that the Yellen came across very dovish in her speech yesterday as she mentioned the need for "gradual" rate hikes numerous times. Key Quotes “Yellen sees a little more slack in the economy than the official unemployment rate would suggest, and expressed doubt that the recent rise in core PCE inflation is sustainable. She said the major difference between December and March is the weaker global growth outlook, and stressed that the Fed's reaction function has not really changed. We think the markets would probably take issue with that, as the Fed seemingly has put a bigger weight in recent months on the catch-all “global developments.” Lastly, she stressed the asymmetric nature of Fed policy when rates are near zero. That is, the Fed is able to easily hike rates to fight inflation but can't cut rates much to fight an economic slowdown. Yellen did mention possibility of expanding the Fed's balance sheet if needed, due to this asymmetry. She noted that Fed studies of actions around the world suggest unconventional polices have worked for the most part. Yellen simply did not sound like someone in a hurry to hike rates, and so the dollar suffered even as stocks and bonds rallied. The yield on the December Fed Funds futures contract has fallen 7 bp after Yellen’s speech to 0.56%, the lowest since February 29. That is less than one hike priced in this year. Likewise, the yield on the 2-year US has fallen to 0.78% and the 10-year to 1.81%, both also the lowest since February 29. Still, we note that the dollar for the most part remains within the trading ranges seen this month. The markets will surely test the dollar’s resilience in the coming days, and we would not be surprised to see some new near-term highs being established for many of the foreign currencies. While we believe the markets are still underestimating the Fed’s potential to tighten, Yellen has added some fuel to the dollar’s correction.” For more information, read our latest forex news.