The U.S. Federal Reserve Chairman Bernanke hinted at a grim outlook for the U.S. economy, but added that the Fed would only take measures if deflation pressures emerged.
The Fed Chairman, Ben Bernanke, has stated that the central bank might need to ease monetary policy further if inflation or inflation expectations decline significantly. He further indicated his willingness to use unconventional policy tools if economic growth in the U.S. remains anemic.
He has called for attention from the White House and Congress to address the nation’s weak labour market and termed the current state of the unemployment as “a national crisis”.
He also urged policy makers to consider “strong housing policies to help the housing market recover”.
Euro – European Markets
The EUR advanced against the USD, this morning, amid market speculation that German Chancellor, Angela Merkel, would gain support amongst her coalition for today’s vote on the European Financial Stability Facility (EFSF).
The currency further climbed on optimism that the ECB may raise its economic assessment for the region. Moreover, yesterday’s higher-than-expected inflation figures from Germany have dented speculation that the European Central Bank would lower its benchmark rates.
Additionally, market concern that France would lose its “AAA” rating has eased, after the French President presented his 2012 budget plan that intends to lower the country’s fiscal deficit. Moreover, the Portuguese Foreign Minister, Paulo Portas, has stated that the country is keen on meeting its goals on the fiscal consideration and economic reform.
In a significant development today, the European Securities and Markets Authority announced the extension of temporary bans on short selling of financial shares in Italy and Spain.
US Dollar – US Markets
The greenback is trading weaker against the high yielding currencies this morning, amid market speculation that Greece would receive the required funds to prevent a default. Yesterday, Finland voted to grant additional powers to the Euro-zone’s bailout fund.
The U.S. second quarter GDP data scheduled for release later today is expected to confirm a slowdown in the economy. Market participants are also keeping an eye on a number of key economic releases including pending home sales, personal consumption, initial jobless and continuing claims data, scheduled for release later today.
Yesterday, the greenback rose against the EUR and the GBP, despite data indicating an unexpected drop in U.S. durable goods orders in August.
Meanwhile, the U.S. President has expressed concerns over the European banking system and has also urged policymakers to take necessary measures to strengthen the financial system.
Pound Sterling – UK Markets
The GBP has gained against the USD, boosted by optimism that European policymakers might avoid a Greek default in the near future. Yesterday, the European Commission President, Jose Manuel Barroso, had asked for increasing the size of Europe's bailout fund and urged the ECB to do “whatever is necessary” to back the Euro-zone.
However, market seems to be cautious, amid signs that the Bank of England might adopt more stimulus measures. Yesterday, the Bank of England policy maker, David Miles, indicated that he might be moving closer to voting for more asset purchases to aid the economy, saying the central bank has “substantial ammunition” if needed.
On the economic front, the Nationwide Building Society reported a minor gain in the U.K. house prices in September, and cautioned that “downside risks” to the property market have increased as economic prospects weaken.
Other Currencies – Highlights
The Kiwi has reversed its yesterday’s losses against the USD and is trading higher this morning, after the Reserve Bank of New Zealand Governor, Alan Bollard, indicated that the central bank might push the policy rates higher as the housing market activity recovers. Adding to the positive mood, the Governor indicated that the country’s Reserve Bank is in a better position than many of its peers to respond to any potential fallout from economic problems in Europe and the U.S.
The AUD rallied against the USD, on report that job vacancies in the nation rose in the three months to August, posting the first increase since the three month period ended November 2010.
Political Jitters in UK Weighs on Pound Sterling
Euro and Pound Sterling Recover Modestly on Friday
The US Dollar Rallies on Upbeat Data and Hawkish Fed Stance