Fed Chairman Ben Bernanke’s reticence to take the prospect of further quantitative easing off the table sent stocks higher and the dollar weaker yesterday. The Fed Chair was downbeat on the prospects for the US economy including saying that the recent falls in unemployment is unlikely to last; his argument being that during the recession we saw firms lay off people too quickly, and re-employing them too quickly, once the recovery was underway.
It is our opinion that further QE in the US is still probably a 50/50 yes/no split at the moment. There is a definite belief that the Federal Reserve has been unnecessarily downbeat on the situation in the US and that they may be happy to keep the dollar weak in the coming years so as to keep US industry competitive.
As a result of the Chair’s comments we saw GBPUSD move back into the 1.59s, whilst EURUSD put an extra cent on in 20mins. Equity markets moved to near 4 year highs whilst gold and oil amongst other commodities also extended recent gains.
German data was broadly positive yesterday morning, although gains for the euro were kept slight by expectations that Angela Merkel may bow to pressure from other European politicians to combine the firepower of the European Financial Stability Facility and the European Stability Mechanism, to give Europe a stronger firewall. We saw peripheral bonds rally on the news at the expense of some weakness in German debt.
German consumer confidence has disappointed however this morning with its first fall in 7 months. The reason is simple and obvious at the moment; fears over increases in energy prices curbing the ability of households to spend elsewhere. France’s consumer confidence has risen unexpectedly however, following rises in business confidence and falling unemployment.
Today’s US consumer confidence data for March may be able to prove or disprove Ben Bernanke’s fears this afternoon. Once again, a drop is expected as a result of the move higher in oil prices. A weaker than expected figure is likely to keep the USD on the back foot.
Indicative Rates Sell Buy
GBPEUR 1.1948 1.1975
GBPUSD 1.5939 1.5964
EURUSD 1.3324 1.3347
GBPJPY 132.05 132.32
GBPAUD 1.5157 1.5184
GBPNZD 1.9368 1.9396
GBPCAD 1.5800 1.5829
NZDUSD 0.8220 0.8240
GBPZAR 12.08 12.13
USDZAR 7.5752 7.6049
GBPPLN 4.9266 4.9532
EURJPY 110.41 110.68
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