The Pound to US Dollar exchange rate (GBP/USD) jumped higher by 0.2 cents last night as outgoing Federal Reserve Chairman Ben Bernanke suggested that the world’s most powerful Central Bank is unlikely to taper its asset purchasing scheme next month.
Bernanke said that despite recent improvements in the US economy, he agrees with incoming Fed President Janet Yellen that more needs to be done to support the revival:
“The economy has made significant progress since the depths of recession. However, we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal setting.”
“I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery”.
GBP/USD surged from 1.1615 to 1.6135 in response to these comments as traders scaled back their bets for a reduction of stimulus.
Bernanke also stated that ultra-low interest rates will remain in place even when the Fed’s $85 billion a month quantitative easing scheme has been wound down completely, asserting that the 6.5% Unemployment target is a threshold not a trigger.
The Fed Chairman’s comments suggest that he would like QE3 to continue at the current pace until March next year, however, there are other members of the Federal Open Market Committee; it does not all boil down to one man’s opinion. Some of the others FOMC members do not share Bernanke’s sentiments, and for this reason it is still possible that Bernanke, and Yellen for that matter, will be outvoted in December. In other words the possibility of a 2013 taper persists. For this reason Sterling was unable to post any significant gains against the US Dollar last night.
Later today the US Advance Retail Sales index is expected to print at 0.0%, showing that demand stagnated during October. And the Consumer Price Index is forecast to have fallen from 1.2% to 1.0%. The relatively soft economic docket is unlikely to lend the ‘Greenback’ much support, especially considering that the Fed targets a CPI inflation rate of 2.0% – twice the expected print.
During the evening the Fed will release the Minutes from its latest FOMC meeting in which policymakers voted against the taper. There are unlikely to be many fresh revelations or significant shifts in sentiment, but any hints towards or against the taper could positively, or negatively impact the US Dollar.
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