Dovish Bernanke Cheers Market

The US Fed Chairman’s comments that an easy monetary policy is required in the near term prompted traders to increase their position in riskier assets and has temporarily put an end to market speculation of an early withdrawal of QE3. Both Sterling and the Euro moved above the 1.51 and 1.31 mark respectively against the US Dollar, following the dovish remarks. Meanwhile the ECB, in its monthly report released earlier today, continued to reiterate its optimistic view of the region recovering later this year. However, with yesterday’s Italian bill auctions witnessing a rise in borrowing costs, today’s longer-dated bond auctions will hold market interest. Additionally, initial jobless claims data in the US will be keenly eyed.

Pound Sterling – UK Markets

On account of a light domestic economic calendar today, news flows emanating from overseas markets have played a pivotal role in charting the direction of Sterling against the majors. After enduring pressure for the last few trading sessions, Sterling regained its footing and breached the 1.51 mark against the US Dollar amid increased appetite for riskier currencies following dovish comments from the US Fed Chief. However, the Pound lost ground against the Euro yesterday. With a lack of decisive domestic news today, Sterling will track global cues for further direction against the majors. Meanwhile, with the recent manufacturing data raising concerns over the nation’s recovery, markets keenly await next week’s retail sales, as well as labour market data, for a clearer picture of the nation’s performance in the second quarter of 2013. The consumer price inflation report and the minutes of the BoE’s latest policy meeting also feature on the economic calendar next week and will provide valuable insights into future monetary policy moves.

US Dollar – US Markets

The FOMC minutes revealed that policy members remained split over the future course of the central bank’s policy moves. A “risk on” rally following dovish remarks from the Fed Chief led the US Dollar to register heavy losses against the majors in today’s trading session. In sharp contrast to his earlier comments, Ben Bernanke indicated that the central bank would continue with its accommodative monetary policy stance for the foreseeable future amid a high unemployment rate, low inflation and tight fiscal policy. This has put speculation of a premature withdrawal of QE3 on the backburner and prompted investors to put money back into riskier currencies. Going forward today, the initial jobless claims data will receive attention following last week’s buoyant non-farm payrolls report. Additionally, the monthly budget statement is also expected to hold market interest. In the midst of an improving economic landscape and tight fiscal policies, the budget is likely to post a surplus for June. However, the direction of risk sentiment is unlikely to be tempered by the outcome of these macro releases, as markets seem to have found some solace following weeks of uncertainty surrounding an exit from QE3.

Euro – European Markets

The single currency rallied and for a brief period nudged above the 1.31 mark against the US Dollar, after the Fed Chief indicated that the central bank would continue with its accommodative monetary policy for the foreseeable future. However, it has pared some of its gains and is trading below the 1.31 level against the greenback. On the macro front the ECB, in its monthly report, indicated that although recent economic releases have offered a grim picture of the region’s economy, the Euro zone would stage a recovery later this year. Moreover, the central bank opined that it has no intention to change its low interest rate policy any time soon. Meanwhile, appetite for peripheral bonds offered renewed cause for concern, as Italy’s short-term borrowing costs rose to the highest level since March 2013 after S&P demoted its sovereign credit rating on the nation by one notch yesterday. A similar rise in bond yields at today’s long term bond auctions could put the nation’s plan of raising cheap debt into jeopardy. With a seemingly lacklustre day ahead in terms of domestic economic releases, traders are expected to monitor overseas events for further cues to risk appetite.

Other Currencies – Highlights

The Japanese Yen has strengthened against the greenback in today’s trading session. However, prevailing “risk on” sentiment following Ben Bernanke’s speech has led the Japanese Yen to decline against the single currency this morning. Meanwhile, along widely expected lines, the Bank of Japan kept its benchmark interest rate and the size of asset purchases unchanged in its monetary policy meeting held earlier today. Moreover, the central bank indicated that the Japanese economy is on its way towards moderate recovery. In this context, all eyes will hover around the central bank’s monthly economic report for July, due tomorrow, for further insights into the pace of the nation’s recovery. Additionally, with today’s machine orders as well as yesterday’s tertiary industry activity data surprising market participants on the upside, industrial production data due tomorrow will attract increased market attention in gauging the strength of the nation’s manufacturing sector.