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22 May 2013
Flash: Bernanke's testimony may weigh on the US dollar - BBH
FXstreet.com (Barcelona) - Bernanke's testimony on Wednesday is the main risk event in the next 24 hours. The market is in need to get further clues over QE prospects, thus the slow market moves seen so far this week.
As Marc Chandler, Global Head of Currency Strategy at BBH, recalls, "the FOMC statement released on May 1 contained one notable tweak and that is that 'The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes', this symmetry contrasts with previous talk that focused on tapering off the purchases. In turn, this suggests some doves pushed back."
The point that Marc brings up is important, as it suggest that the Fed is still open to consider any scenario depending on the evolution of fundamentals. As Marc notes, "data released since the meeting has generally been soft and/or disappointing, thus on balance, we suspect Bernanke will recognize, as the FOMC statement did, that the economy is growing at a moderate pace and that decisions on the pace of asset purchases is a function of changes in employment and inflation."
Marc's conclusion is as follows: "It serves his interest to indicate it is data determined and that more data is needed, and if this does in fact materialize, we suspect it would be supportive for US Treasuries while weighing on the dollar."
As Marc Chandler, Global Head of Currency Strategy at BBH, recalls, "the FOMC statement released on May 1 contained one notable tweak and that is that 'The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes', this symmetry contrasts with previous talk that focused on tapering off the purchases. In turn, this suggests some doves pushed back."
The point that Marc brings up is important, as it suggest that the Fed is still open to consider any scenario depending on the evolution of fundamentals. As Marc notes, "data released since the meeting has generally been soft and/or disappointing, thus on balance, we suspect Bernanke will recognize, as the FOMC statement did, that the economy is growing at a moderate pace and that decisions on the pace of asset purchases is a function of changes in employment and inflation."
Marc's conclusion is as follows: "It serves his interest to indicate it is data determined and that more data is needed, and if this does in fact materialize, we suspect it would be supportive for US Treasuries while weighing on the dollar."