Pound To Dollar Exchange Rate Threatens To Go Higher As Bernanke Hints As Further QE In The US

Published: Monday, 3 September 2012 09:00 BST - Written by David Woodsmith

STORY LINK Pound To Dollar Exchange Rate Threatens To Go Higher As Bernanke Hints As Further QE In The US

Friday’s main event in the currency markets saw Federal Reserve Chairman Ben Bernanke address the annual Jackson Hole forum of central bankers. As ever, Bernanke’s comments were closely-monitored by investors for clues regarding the future direction of monetary policy in the US.

Although the Fed Chairman failed to explicitly pre-announce a third tranche of American quantitative easing, as some market participants had been anticipating, the overall tone of his commentary was viewed by analysts as giving a green light for a further loosening of monetary policy in the States. Bernanke’s assertion that, "the Federal Reserve will provide additional policy accommodation as needed," certainly implied that an extension to America’s asset purchase scheme was on the cards. However, Bernanke’s speech also contained evocative descriptions of the current parlous state of the US’s real economy; he expressed his ‘grave concern’ over the situation in America’s job market and described the challenges facing the global economy as ‘daunting’.

These foreboding words caused a flight to safety in the immediate aftermath of the speech which saw the US Dollar strengthen across the board, taking the GBP USD exchange rate back into the lower part of the 1.5800s by the European equities close on Friday. Relief at the fact that no concrete plan for QE3 had been announced helped provide further fuel for this surge of safe-haven Dollar support. However, the bout of Dollar strength proved short-lived and Cable was soon trading back up in the high 1.5800s, ending the week’s session at 1.5865.

This week’s session saw GBP USD open at 1.5881, higher than last Friday’s close. As ever, a price gap higher sends out a bullish signal for a currency pair, so there may be more upside to come for Cable during today’s session.

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