MORNING BRIEFING: The Fed to tighten monetary policy once recovery takes hold.

[RTFX-Trading]

MORNING BRIEFING: The Fed to tighten monetary policy once recovery takes hold.

What’s new:
United Kingdom: BoE keep rates and QE program unchanged.
Euro Zone: ECB leave rates unchanged as expected.
Euro zone: Trichet expects gradual recovery, however cautions that uncertainty remains high.
Euro zone: Trichet said interest rates remained at an appropriate level.
Euro zone: Trichet reiterated his stance that US authorities’ support for a strong dollar was ‘important’.
United States: Bernanke says that the Fed will raise interest rates once economic recovery takes hold.
United States: Kansas City Fed President Hoenig, warned of the perils of leaving rates too low for too long.

Today:


Overnight Rates and Indices:
EURUSD: 1.4797 – 1.4703.
USDCHF: 1.0324 – 1.0257.
GBPUSD: 1.6079 – 1.5999.
EURJPY: 131.48 – 130.69.
USDJPY: 89.30 – 88.35.
DowJones: 9'786.87 +0.63%.
NASDAQ: 2’123.93 +0.64%.
S&P 500: 1’065.48 +0.75%.
Nikkei: 9’891.66 +0.60%.
Shanghai: 2’900.49 +4.34%,
Gold: $1049.70
Crude Oil: $71.14
 
Comments:

The US Federal Reserve President Bernanke, speaking at a Fed Conference, said that “At some point, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflationary problem down the road.” Bernanke also said that the Fed is gradually but steadily moving toward an exit from its support policies. Following Bernanke’s comments, the US Dollar inched up from a 14 month low against the Australian Dollar, from 0.9090 yesterday, down to 0.9023, to 1.4703 from 1.4817 against the Euro, up to 89.30 from 88.36 versus the Yen, and 1.0324 from 1.0257 against the Swiss Franc.

More comments supporting the Dollar came from the Director of the White House’s Economic Council Lawrence Summers, who said Treasury Secretary Timothy Geithner has made it clear that the United States is committed to a strong Dollar. Also, Kansas City Fed President Hoenig warned that leaving rates close to zero for too long will cause other problems and issues for the Fed and US economy.

The comments by key US officials came just a few hours after the decision by the ECB to keep rates unchanged and ECB President Trichet’s comments that the US officials’ support for a strong Dollar is ‘important’.  Following Trichet’s press conference, the Euro rose to 1.4817, as traders were expecting a more forceful statement to address the European’s single currency’s recent gains. The BoE also kept rates unchanged, and also kept its ‘Quantitive Easing’ program at £175 Billion.

Have a good week end.

Emman Xuereb

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