Bernanke’s remarks this week on the US job market are being considered his most dovish stance to date. The reserve currency of choice chose to underperform, squeezing weaker shorts and managing to print a new medium EUR term high. Unless the market gets a sense that the Fed is contemplating another round of QE, then the dollar is not expected to weaken significantly from here. By stating that the problems troubling the job markets are ‘cyclical and not structural’ implies that policy stimulus can be effective at reducing the labor market slack. If however, the problems facing the US were structural in nature, then accommodative monetary policy would not necessarily be effective. Now that quarter and month end rebalancing has been completed, the market can get back to trading fundamentals. This week’s slew of global PMI’s could be setting the tone for the dollar a considerable period of time.
