Bernanke reaffirms Fed's commitment to using monetary policy to continue labour market recovery
09/Apr/2013 • Currency Updates•
Sterling lost ground against both the euro and dollar yesterday despite a lack of any clear fundamental data releases or market moving events. UK gilts yields rose from a 7-month low, and the FTSE 100 increased marginally by 0.43%.
GBP/USD may move higher today as manufacturing and industrial outputs are expected to increase in the UK from previous months by 0.1%. This move would go some way to confirm that the economic recovery in Britain is gradually gathering pace. Improved UK data would suggest that we are entering a period in which the majority of the Monetary Policy Committee will continue to support a neutral policy stance for 2013. As such, GBP/USD remains poised to retrace the sharp decline from earlier this year as the central bank scales back its willingness to further embark on quantitative easing.
The euro rallied up to last week’s highs, as Russia agreed to restructure the EUR 2.5B loan taken by Cyprus in 2011, while Portugal pledged to increase its push for austerity after the region’s Constitutional Court struck down plans to cut payments to state workers and pensioners.
In turn, the European Union said the next bailout disbursement for Portugal is conditional on review, while European Council President Herman Van Rompuy assured the group would take a growth-friendly approach in addressing the risks surrounding the region as the peripheral countries struggle to get their financial system in order.
The euro-area is still giving signs of continuous recession, as the Sentix Investor Confidence survey tumbled to -17.3 in April to mark the lowest reading since December, and it might push the European Central Bank (ECB) to drop the benchmark interest rate to a fresh record-low in the coming months as the governments operating under the single currency become increasingly reliant on monetary support, pushing down the euro further.
The only important data due in Europe today is the German Trade Balance for February, which is expected to print better than the previous month, showing a larger trade surplus. This move should push the euro higher but the currency has started the morning poorly, losing ground after gains made after Bernanke’s speech last night.
The U.S. dollar Index climbed yesterday, led by the on-going weakness in the Japanese yen, but then dropped after Federal Reserve Chairman Ben S. Bernanke stated a much more dovish tone in his speech in the Atlanta Fed.
He stated: ”Today the economy is significantly stronger than it was four years ago, although conditions are clearly still far from where we would all like them to be”
The Fed quantitative easing program is based on buying $85 billion of bonds to increase growth. Fed members repeated in their March meeting that the central bank will maintain its ultra-easing policy until there’s significant improvement in the labour market, setting its main goal to reduce the unemployment rate to 7% in 2014.