■ Yellen says at Jackson Hole that case for increase in Fed’s rate has strengthened

■ Alternatively, she also said range of outcomes for Fed’s rate is quite wide

■ Fed’s Fischer followed with a hawkish interpretation of Yellen’s words

■ EUR/USD drops to 1.1198 after Fischer’s commentary

■ Live Sept announcement also weighs on equity, with S&P 500 losing 0.7% weekly

■ Oil prices decline as U.S. inventories increase and Angola ramps up production

After trading mostly sideways for the week, markets gained considerable volatility, Friday, as Fed Chair Yellen delivered her speech at the annual meeting of central bankers in Jackson Hole. Following ample speculation on the guidance to be conveyed Yellen’s remarks were interpreted as rather hawkish, at least on first glimpse. These included Yellen saying that she believes that “the case for an increase in the federal funds rate has strengthened in recent months.” She further noted that the economy is nearing the Fed’s employment goal and that the Fed is of the opinion that raising rates would be a better approach right now than downsizing the Fed’s asset holdings, as the Fed has a higher ability in predicting the effects of raising rates on inflation.

Initial response included an increase of the treasury’s yield curve – After hovering around 0.79% the U.S. 2 year bond spiked to 0.82%, signaling growing expectations for a forthcoming rate hike. The greenback also strengthened somewhat, going to 1.1273 vs. the Euro, after trading around 1.1290 for most of the day. Additional commentary by Yellen, however, was not as hawkish, from the usual “monetary policy is not on a preset course” to noting that “the range of reasonably likely outcomes for the federal funds rate is quite wide.” These have led to an opposite reaction, with the U.S. 2 year visiting a daily low and EUR/USD touching a daily high of 1.1341.

With a little help from Fischer

While commentary by Yellen was goldilocks in many aspects, a subsequent interview by her vice, Fischer, carried a greater weight on markets. Fischer interpreted Yellen’s comments as answering ‘yes’ to whether a rate hike is possible for both September, as well as more than one hike this year. Market response this time included a consistent gain at bond yields, with the U.S. 2 year ending the day at over 0.84%. EUR/USD, similarly, fell to 1.1198, setting a two-week low for the currency pair.

Equity’s negative response was also clear with the S&P500 losing about a percentage point on Fischer’s remarks. While the index did recover somewhat towards the end of the day, earlier losses for the week have led it to a 0.7% weekly loss.

With seasonally low volumes for equity, earlier days of the weekly session were dominated by volatile oil prices. After breaking back below the USD 47 per barrel level, Tuesday saw a sharp increase for oil, amid Reuters reporting that Iran is “sending positive signals” for joining in on the OPEC led initiative to tame supply. The following day, however, saw a steep decline for oil prices fueled by reports of U.S. oil inventories rising, coupled with news that Angola has overtaken Saudi Arabia as the largest exporter of oil to China.