The effect of last night’s FOMC Statement and Press Conference was laser like on the currency markets. The USD finds itself at three year lows against the EUR, and also found itself bruised by the GBP. The AUD is trading near twenty nine years highs and Gold is at a record mark. What did Ben Bernanke say that killed the USD? Well actually nothing new in fact. And that may have been the problem. While Bernanke spoke about the need for a strong USD midterm, he basically swept aside any worries about ‘short term fluctuations’. The Fed said that the U.S. economy is still enjoying moderate growth. It expressed concerns about unemployment. Also importantly the Fed said that it is likely to end the quantitative easing policy on schedule early this summer. All of this left investors facing the prospects that the Fed will continue its ‘soft’ monetary policy for the next couple of months. And although Bernanke spoke about the high costs of energy, he also suggested that he believes the Crude Oil market will become more stable. This little point on inflation may be the spark that is causing additional volatility within the USD, as investors question the Fed’s ability to quantify what the price of Crude Oil will be in the coming dog days of summer.
Wall Street finished the day with slightly positive results after trading negatively most of Wednesday. Early trading in Asia suggests equity markets may continue their positive run today. The record price of Gold carries a complex barometer for investors. Inflation fears, instability among benchmark currencies, and overall questions about debt ratios and the prospects for international growth are within the mix. A weak USD does many emerging countries ‘no favors’ and helps fuel inflation as countries like China, India, and Brazil face rising costs and the need to raise prices on exports. The impact of a weak USD may in the short term help the United States economy, but it is a dangerous game and as long as the Greenback maintains its current stance as the international reserve currency of first choice many nations will find that domestic inflation remains uncomfortable.
The JPY has found a consolidated path the past few trading sessions and Japan continues to face a difficult economic road ahead. Many investors are beginning to question the overall strength of the JPY, but its results from the past few years have shown that through thick and thin the Yen continues to stay on the stronger sides of its range. At some point the JPY is likely to decline in value but the question is when, and apparently until a real break occurs the currency is likely to see its well known ‘range dance’ continue.
The EUR and GBP both enjoyed a huge surge against the USD in late trading on Wednesday. The market place was a dynamic one last night and these last two days of trading before going into the weekend should continue to be action packed as investors try to find ‘relative value’. It will be a light day of data from Europe and the U.K. today. Although data from Europe including Germany and the U.K. were lackluster yesterday, both the EUR and GBP will trade in a dollar centric mode.
The U.S. will issue Advance GDP numbers today along with Pending Home Sales, and while these numbers are important, the day may belong to residual effects from the Federal Reserve and Ben Bernanke.
Written by bforex.com