TS:FOREX: US Dollar May Rise As Bernanke Disappoints Stimulus Hopes
Ben Bernanke May Disappoint Traders Waiting for More Fed Stimulus
Aussie Dollar Gains as RBA’s Stevens Talks Down Case for Rate Cuts
Needless to say, all eyes are now on Federal Reserve Chairman Ben Bernanke as the he delivers his much-anticipated speech at the central bankers’ symposium in Jackson Hole, Wyoming. Markets appear positioned for the unveiling of further stimulus, with S&P 500 stock index futures scoring gains overnight. Such an outcome would naturally bode well for the spectrum of sentiment-sensitive currencies while weighing on established safe-havens and especially the US Dollar .
Traders waiting for the Fed to come riding to their rescue may be due for a disappointment however. When Mr Bernanke began to unveil QE2 at last year’s Jackson Hole sit-down, the central purpose was to ward off deflation expectations. A year on, medium-term inflation expectations (as reflected in bond yields) are down over 25 percent, putting the policy’s success in question.
Meanwhile, the unprecedented move to define the “extended period” through which rates will remain “exceptionally low” at the last FOMC meeting as mid-2013 may have been the beginning of a new, post-QE approach to stimulus. The announcement gave firms and investors a clearly defined window to capitalize on low borrowing costs and enough lead time to plan to do so. This seems like a clear attempt to offset the largest perceived problem with the effectiveness of QE in spurring the private sector out of complacency: the inherent uncertainty surrounding the use of a new, unorthodox policy tool.
The Australian Dollar led a modest advance against the greenback in overnight trade after RBA Governor Glenn Stevens’ testimony before the government’s Economics committee struck a dovish tone, presenting the case against interest rate cuts. The central bank chief said inflation will top 3 percent in the third quarter, adding that price growth data “continues to be concerning”. Stevens went on to say the central bank aims to contain CPI growth at 2-3 percent while noting that recent inflation figures have been “a bit troubling”.
