Gold hit a three-month high and global shares edged higher on Tuesday as investors bet that the new head of the U.S. Federal Reserve would navigate through her first testimony to Congress without rocking the markets boat.
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 on Tuesday.
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 0.8 percent to 1,283.95, while the dollar was a touch lower against the euro at $1.3673.
The greenback index eased 0.1 percent to 80.544 against a basket of major currencies, having dropped as far as 80.498 at one point, its lowest level since January 29.
The sharpest move came in the Australian dollar, which rose 0.9 percent $0.9025 after figures showed a broad improvement in business activity combined with a near 10 percent annual increase in home prices.
The FTSEurofirst 300 index of European shares rose 0.6 percent, led by measurement technology group Hexagon after it published an upbeat outlook statement.
The broader MSCI All-Country World Index was up 0.3 percent and U.S. stock futures were also trading firmer with the S&P 500 e-mini contract up 0.4 percent.
Yellen’s testimony will be released at 1330 GMT, although her hearing before the Financial Services Committee of the Republican-controlled House of Representatives does not begin until 1500 GMT. She will appear before the Democrat-controlled Senate’s Banking Committee on Thursday.
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 testimony is likely to be more theatre than economics,” said Marshall Gittler, head of global FX strategy at online trader IronFx Global.
“Yellen will probably try to remain polite and give upbeat, optimistic answers that will play well on TV. In that respect her testimony may present a favorable picture of the U.S. economy that could boost the dollar.”
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 sparked 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.
“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.”
In oil markets, prices steadied after recent gains as the market looked toward the end of a long and frigid winter.