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Fed Bernanke’s comments on Monday have once again indirectly put pressure on the USD after the Fed Chair mitigated the latest impressive round of US employment data and reiterated that rates would remain low for an extended period of time. While the data was encouraging, there are still a number of hurdles that need to be overcome before the Fed can confidently look to remove stimulus and begin to reverse monetary policy. The market reaction has seen currencies well bid and gold once again rallying well off of its spike lows from Monday. The rally in gold comes despite comments from Korea that the surge in the yellow metal has been an illusion and that most central banks are not buying the commodity.
A lot of attention in Asia has been centered around the unveiling of Japan’s stimulus package, with the government approving a Yen7.2T set of fiscal spending measures to support the local economy. The Japanese government has also included a warning in its stimulus statement that excessive fluctuations and disorderly FX moves are a negative for the economy, and that it will continue to carefully monitor moves in the currency market.
On the data front, Japan’s economic indicators continued to show improvement with a rebound in exports and output. Elsewhere, Australian business confidence data rose to a seven year high overnight, while business conditions slipped back from their 2009 highs set in November. Moodys has been on the wires shaking things up a bit after saying that the US and UK must shrink their ballooning deficits or risk a downgrade to their triple-A credit ratings.
Looking ahead, UK industrial production (0.5% expected) is set for release at 9:30GMT, followed by German industrial production (1.0% expected) at 11:00GMT. On the day, all currencies are relatively unchanged against the USD, with the exception of the Yen which tracks some 0.75% higher. US equity futures and commodities trade flat.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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