Bernanke?s Words Cause Pound To Dollar Rate To Ease, Euro Remains Steady

Published: Friday, 8 June 2012 10:00 BST - Written by Toni Johnson

STORY LINK Bernanke?s Words Cause Pound To Dollar Rate To Ease, Euro Remains Steady

Federal Reserve Chairman Ben Bernanke spoke late yesterday and global currency market participants listened. The head of the world’s leading central bank is often looked to for direction on the future direction of the global economy and yesterday was no exception; Bernanke asserted that he was ‘ready to act’ if the economic situation in the US economy continued to deteriorate. Bernanke also rehearsed his previous comments regarding the risks which the eurozone’s ongoing debt crisis posed to his nation’s ongoing economic well-being. Commentators took Bernanke’s words as a signal that the Federal Reserve is seriously considering a further loosening of monetary policy in the form of an additional tranche of Quantitative Easing.

In previous years, hints by central bankers that they were about to introduce easing measures have hit currencies hard – vis a v the first two tranches of QE in the USA. However, this appears to have changed in recent weeks, as global investors begin to look favourably upon direct action by central banks, viewing it as a positive response to difficult economic conditions. Yesterday re-enforced this impression, as the US Dollar strengthens following Bernanke’s comments. This saw the GBP USD exchange rate dip to 1.5419 overnight.

Elsewhere, there has been further bad news from mainland Europe in the last few hours, as France’s central bank announced that it was trimming its domestic growth forecast for 2012. The Bank of France now predicts that economic activity will contract by 0.1% this year, heaping the pressure on the already-beleaguered European economy.

Meanwhile, there was further disappointing news for Spain last night, when leading credit ratings agency Fitch cut the troubled nation’s credit rating by three notches to ‘BBB’. However, this did not appear to surprise many market participants and the GBP EUR exchange rate remains in the 1.2300s.

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