Bernanke talks up the possibility of further QE as markets rally on optimism

Tom Tong27/Mar/2012Currency Updates

GBP

A very quiet day in terms of UK economic data yesterday with very little to mention. It traded within a tight range against the dollar, tracking moves in the Euro versus the greenback due to the lack of data out of the UK left the pound subject to influence from shifts in broader market sentiment. We also saw the FTSE post a two week high yesterday as expectations of looser monetary policy and stronger German data made investors push the market towards an 8 month high. It rallied to a 3 1/2 week high against the dollar and had very little movement against the Euro. There could be political woe on the horizon as a fuel tankers strike threatens petrol supply in the UK.

EUR

Angela Merkel indicated yesterday that Germany was prepared to allow a boost in the eurozone’s firewall against the eurozone debt crisis ahead of talks on the issue by European finance ministers. She said that Berlin was open to combining €500 billion from a permanent rescue fund that comes into effect in July with the €200 billion already promised to the debt-ridden countries. The two funds could run in parallel until the €200 billion is paid back by struggling countries — Ireland, Portugal and Greece. She also talked about how Greece’s exit from the euro would be a “catastrophic” political and economical mistake that would severely weaken the single currency, believing it may cause a domino effect that would lead to speculation about more countries abandoning the currency.

The single currency also had a strong day against its biggest rival (USD) seeing it reach its highest point since March 2nd. Swiss franc also rallied to its highest against the dollar since March 2nd. Elsewhere in the Eurozone we saw consolidation of the banking sector in Spain with La Caixa being bought out by its smaller rival Caixa bank. There was also a surge in confidence in Germany and Italy with business sentiment rising in both nations.

USD

The Federal Reserve Chairman Ben Bernanke said a continuation of easy monetary policy would be key to cutting U.S. unemployment. The U.S. job market is still weak despite recent signs that is improving with employers adding an average of 245,000 jobs a month from December to February, seeing the unemployment rate at 8.3% in February which was down 0.7% from the same month a year ago. The central bank has kept interest rates near zero since cutting them during the financial crisis in December 2008. The Fed rates are kept low in order to help the economy recover although it being slow it seems to be showing signs of doing so although Bernanke’s speech hinted on more quantitative easing.

A tough day for the greenback losing ground against Sterling and Euro. We also saw Gold prices rise 1.3% and Brent crude rise 0.43% on the back or Bernanke’s comments as his dovish stance reminded investors about the threat of inflation in the foreseeable future.

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Written by Tom Tong

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