The currency blog

Yesterday most of the good sentiment was fed into the markets on open following the announcement of a $3 billion plan to recapitalize CIT. Sterling initially rallied against the US dollar and Japanese Yen but early gains consolidated in later trading. Although the feel good factor is still in place the market is a little cautious and awaiting Fed chairman Ben Bernanke’s semi-annual review on the economy later today and also further US corporate earnings this week. GBP/USD retreated from a high of 1.6548 to settle in the mid 1.64 area, GBP/JPY topped out at 156.4 and now sits at 154.70, GBP/EUR remains in sideways trading at 1.1570.

One reason for market consolidation and USD firming is an opinion noted by Ben Bernanke in the Wall Street Journal entitled “The Fed’s Exit Strategy”. It is noted that monetary policy may need to tighten to prevent an inflation problem down the line and this led to USD strength predominantly against the higher yielders such as the AUD and NZD but also against sterling. The market will focus on Bernanke’s comments this afternoon to try to divulge any further clues on the future plans of the Federal Reserve.

Today aside from Ben Bernanke’s review we have the interest rate decision from the Bank of Canada- it is not expected that rates will be moved, however bank governor Mark Carney may comment on the recent rise on the Canadian dollar hindering economic growth. The Canadian Dollar was a big gainer yesterday as the shift to risk appetite and demand for commodities.

Discuss on this on the Currency Exchange Forum