Which Way Will Bernanke Go?

Perhaps unlike previous instances, markets seem to be in the dark over whether the Fed Chairman, in his annual address today, will resort to additional monetary easing measures to revive the US economy. However, market whispers do suggest that Bernanke might hold his cards close to his chest until the release of non-farm payrolls and ISM manufacturing data next week. Although Spain remains on the brink of seeking more aid, the nation’s Prime Minister reiterated that the country would avoid demanding assistance until his European counterparts make aid conditions clear. Next week’s monetary policy decisions from the ECB and the BoE are also expected to keep investors on their toes.

Pound Sterling – UK Markets

The Pound slipped below the 1.58 mark against the greenback in yesterday’s trading session amid prevalent growth concerns in the UK and Eurozone and cautious trading ahead of the Jackson Hole summit today. Both CBI and BCC sharply downgraded their current year growth forecast for the British economy, citing lack of fiscal initiatives to boost growth. Growth worries were also backed by weak economic data as the UK’s consumer confidence index continued to languish at lower levels for August. Meanwhile BoE MPC member, Adam Posen, indicated that policymakers in the UK should consider buying assets other than government bonds, if it chooses to adopt further easing measures. The Pound has recovered marginally from previous session lows against the US Dollar this morning after data from Nationwide indicated that house prices in the UK recovered at a faster than expected pace for August. However, Sterling continues to trade in a tight range against the Euro in today’s session. With no major macro data on tap for the day, all eyes are on the much awaited Jackson Hole summit for further direction to the Pound.

US Dollar – US Markets

Yesterday, the greenback had advanced marginally against the majors on prevalent fears over the Spanish economy. This morning the Dollar trades close to yesterday’s highs against both the Pound and the Euro as uncertainty over the Fed Chairman hinting at potential QE3 at Jackson Hole later today continues to plague the market. The Atlanta Fed President, Dennis Lockhart, added to the anxiety by indicating that it would be a “close call” when the Fed policymakers meet next month to chart out the future course of monetary policy. Meanwhile, economic indicators released yesterday painted a mixed picture, as US consumer spending grew while the jobless claims report was fairly downbeat. This has now turned focus to today’s factory orders and Chicago manufacturing PMI data for some definite cues on the performance of the economy. Although the outcome of the symposium at Jackson Hole holds relevance in today’s trading session, next week’s ISM manufacturing and non-farm payroll figures remain key figures on traders’ radar, given the growing influence of economic indicators on Fed policymakers.

Euro – European Markets

The Euro retreated against the US Dollar and briefly slid below the 1.25 mark in yesterday’s trading session after Spain’s Prime Minister, Mariano Rajoy, indicated that the nation would not seek a second bailout until European leaders provide more clarity on the aid conditions. The prevalent worries over the Spanish fiscal situation prompted Moody’s to place the nation’s credit rating on review through September. Meanwhile, robust demand witnessed at the Italian bond auction, coupled with Rajoy and Hollande’s explicit commitment towards the single currency, failed to allay market concerns. In today’s trading session, the Euro is languishing close to yesterday’s lows against the US Dollar, as economic releases earlier today offered little reasons to cheer. The unemployment rate in Italy continues to rise while German retail sales unexpectedly slid for July. With the ECB President opting to stay away from the Jackson Hole Symposium, all eyes are set on Bernanke’s speech for further cues on stimulus measures. On the macro front, Eurozone consumer price inflation and unemployment data due later today should provide some necessary ingredients ahead of the ECB’s policy decision next week.

Other Currencies – Highlights

The Japanese Yen is trading higher against its major peers in today’s trading session, as uncertainty surrounding the Fed Chairman’s speech prompted traders to move towards safe haven currencies. Moreover, traders remained wary about global economic growth after Moody’s left the door open for a further downgrade of Spain’s credit rating. However, economic indicators from Japan confirmed that the domestic economic situation remains weak. Industrial production unexpectedly slipped while housing starts plunged sharply for July. The weakness in the manufacturing sector seems to persist after the latest PMI data revealed that manufacturing activity in Japan continues to contract for August. Additionally, deflationary trends in the economy show no signs of receding, with inflation remaining below the central bank’s target rate, leaving room for the Bank of Japan to induce fresh easing measures. With all major domestic economic releases out, markets are expected to closely follow the news flow emanating from Jackson Hole and tomorrow’s Chinese manufacturing PMI data for further direction.