Fed Chairman

Hiya

So reading the news and looking at the charts it seems that the news over the weekend regarding Larry Summers decision to withdraw for the running as Fed Chairman meant Stocks and T-Notes rose, which resulted in the USD price declining early this morning (up until 9am ET that is.)

Why would this news cause the USD currency to weaken? Is it based on this news or is it the fact Stock prices rose that affected the USD more?

Summers is generally believed to be more aggressive, and his views on the fed scaling back on investments is well known. Of course, his other er… colorful qualities have made him a non entity is not surprising and one of the reasons for USD to weaken would be his views on Fed investments and the bond market.

So with him withdrawing this weekend, meant the USD weakened - therefore if he did become the Fed Chairman, or continue to be a runner, then it “could” have meant the USD would do the opposite and strengthen? (visa-versa with the stocks as the Stocks rose on his announcement to withdraw, but if he was to be a front runner, would the stocks have dropped?)

Am i reading that correctly?

Yes, stocks would have dropped.

This isn’t so much the USD weakening in terms of overall strength, it’s more a “risk on” environment now that he’s gone. The dollar is weakening as money flows back into equities and out of cash, so the supply climbs.

Yes that’s correct but the question you need to ask is “Who’s going to be the next fed-nanke?”

I think Yellen is more of a dove compared to Summers, so traders are foreseeing further easing or at least continued loose monetary policy under her watch. Something I read on the Piponomics blog recently: Lawrence Summers Is Out of the Fed Race! | Forex Blog: Piponomics

After Bernanke’s statement / decision of the FOMC, not to start tapering
now, it will be the unenviable job of the successor to do and sell this.

Yeah, it’s gonna be tricky! I think the job is already unenviable even without the tapering issue. :smiley:

They really do not have much of a choice - its a decision they need to take at some point. For the moment, they have opted to deal with the issue later in view of the impact on currencies from emerging markets, fair enough.
But it’s a decision that needs to be taken at some point…

Yeah, I agree that it’s bound to happen, just a matter of timing. Markets will probably price in no tapering until the end of the year/Bernanke’s term though, don’t you think? Plus the fact that Yellen’s a dove, maybe no tapering for a considerable while?

I don’t expect any tapering to happen before March/April next year…given what went down on the basis of a rumor…who knew that the Fed is listening? (pun intended)