Monday 26 February 2018

Bernanke's dovish comments underpin asset prices

Fed chairman Ben Bernanke
Fed chairman Ben Bernanke

Fed Chairman Bernanke reiterated the Fed would maintain its ultra-easy policy for as long as needed and would taper bond-buying only when it was sure that labour market improvements would continue.

"Some people had been thinking that the Fed could begin tapering in December. But Bernanke's comments sound like there will be no tapering in December," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

Bernanke's comments boosted the euro to a three-week high of $1.3584. The common currency last traded at $1.3550, up slightly from late U.S. levels.

Commodity prices also bounced back from lows following Bernanke's comments.

U.S. crude futures gained 0.3pc, after hitting 5 1/2-month low the previous day on hopes that talks between world powers and Iran could lead to an easing of sanctions against the oil producer.

Copper rose 0.3pc while silver rose 0.6pc, both bouncing back from three-months low set on Tuesday.

Investor focus is now moving to the minutes of the Fed's October policy meeting as well as a barrage of U.S. data, including retail sales and inflation, due later in the day.

PBOC SEEN WIDENING YUAN TRADING BAND

In another closely-watched move, the Chinese central bank set the yuan's mid-point for Wednesday trading at 6.1305 per dollar, the highest level since the landmark revaluation in 2005.

Zhou Xiaochuan, head of the People's Bank of China, said in a book about the reforms published on Tuesday that China will gradually expand the yuan's foreign exchange trading band to make the currency more flexible and market-driven.

While that does not necessarily mean that China will move the trading band overnight, some analysts think the yuan could gain in the near-term on speculation of a wider trading band. The yuan was little changed in onshore trading, changing hands at 6.0923 per dollar compared with 6.0927 at the local close on Tuesday.

The U.S. dollar was also unsettled by the news on China as Beijing is less likely to buy U.S. dollars to keep its currency in check.

Reuters

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