Renewed risk appetite sent traders scurrying back to higher yielding assets, leaving the dollar to give up some of its gains from the previous day. The dollar fell against the com-dolls, but was able to stay in pace with the euro and pound.
Some hawkish comments from Fed members helped spur the rise in risk appetite yesterday. Apparently, Fed Chairman Ben Bernanke delivered some positive comments, saying that consumer spending and investment had some momentum. Of course, being the good ol’ Big Ben that he is, he quickly added that it “won’t feel terrific”. Cautious optimism once again eh!?
It’s not surprising that traders reacted positively to Bernanke’s comments. After all, he is the head of the Fed (oooh, I just dropped a rhyme!), so he does have a lot of influence over monetary policy. Furthermore, out of all the Fed members, he has probably been the most dovish and cautious over the state of the economy. So when you hear Bernanke dismiss fears of a double dip recession, it’s a victory in itself!
In other news, Fed member Charles Evans also provided more fuel to burn for risk hungry investors, when he said that the debt crisis in Europe may have a limited impact on the US economy. He pointed out that while GDP growth may take a hit, US exports to the euro zone only account for 15% of total exports.
Tonight, Bernanke will be speaking again, at 2:00 pm GMT and at 8:00 pm GMT. Will he give more calming words to the market?
Watch out also for the release of the Beige Book at 6:00 pm GMT. This book contains analysis that the FOMC uses to help make decisions regarding interest rates. Now, even with Bernanke showing more optimism, I don’t think this will translate to any rate hikes soon, but it’ll be interesting to see if more evidence pops up pointing towards stronger recovery.