The week started with bumpy, volatile trading nevertheless concluded in a whimper as Friday’s buying and selling resembled the calm market from Thursday. The euro and Swiss franc put up miniscule gains and were the top performers while Australian dollar and British pound lagged.
Newsflow in the North American program was light. The market was mostly absorbing China’s decision to raise its bank reserve ratio and Fed Chairman Ben Bernanke’s harshest words yet for China.
The trading day commenced with a small risk-off theme following the reserve ratio hike. China contains a coming inflation issue that’s likely to develop into a more problematic increase. Officials increased the reserve ratio last week and did so yet again on Friday, by fifty basis points. The move cooled commodity prices and is a threat to multinational growth, specifically in the Asia-Pacific area. The results was a 50 pip decrease in the Australian dollar.
Ben Bernanke wouldn’t directly name China nevertheless mentioned its measures may bring about a bleak result. “Although the parallels are certainly far from perfect, and I am certainly not predicting a new Depression, some of the lessons from that grim period are applicable today,” Bernanke said. “In particular, for large, systemically important countries with persistent current-account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.”
Fed Chairman Ben Bernanke also called for U.S. political figures to accomplish more to stimulate the economic climate and minimize joblessness. “On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” he said. “As a society, we should find that outcome unacceptable.”
Bernanke suggestions were more geared at the importance of financial stimulus as opposed to deficit cutting for the short term. If such policy suggestions are implemented, they may weigh on the U.S. dollar.
“In general terms, a fiscal program that combines near-term measures to enhance growth and strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve,” he said in a speech in Frankfurt. Content provided by AroundFX.com
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