Tuesday, 27 March 2012

Daily Forex Brief London: Tuesday 27th March 2012


Yesterday's remarks by Fed Chairman Bernanke have put paid to the recent hypothesis that the Fed might be reversing its commitment to an extended period of ultra-loose monetary policy any time soon. His suggestion that wages growth remains subdued because of the weak labour market scuppered speculation that the Fed might need to start raising rates as soon as 2014. Although Bernanke acknowledged the better news on both the labour and housing market fronts, he reaffirmed that the Fed would stay cautious. The content and tone of his remarks is completely understandable, notwithstanding the recent suggestion from two regional Fed Presidents that policy officials in the US might need to revise the setting of monetary policy before too long. At their last meeting on March 13th, policy-makers at the Fed slightly raised their forecasts for growth this year, although they observed that unemployment remained elevated and that there were still 'significant downside risks' to growth. Last week, the Fed Chairman told Congress that higher oil prices represented an additional headwind for growth. New York Fed President Dudley recently pointed out that roughly half of the improvement in the unemployment rate over the past six months was due to declining labour force-participation. Dudley claimed that a rising proportion of Americans have left the labour force because they have become discouraged after a lengthy search for work. It remains to be seen whether this latest shift in expectations is premature

Also in today's Daily Forex Brief:
  • Bernanke's dovishness gives the dollar the boot
  • Tough times in India
  • Contrasting Germany

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