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Markets blinkered by pending Federal Reserve decision

Markets blinkered by pending Federal Reserve decision

Yesterday the U.S. dollar fell versus most  major currencies after news broke that former U.S. Treasury Secretary, Lawrence Summers had retired from the race to become the next chairman of the Federal Reserve.

So someone turned down a job – why does that impact USD?

The dollar was weakened by the news, since Summers’ was considered as being likely to unwind economic stimulus measures more aggressively than his main rivals for the post. As such he was likely to reduce the supply of USD and hence it’s price would have increased, furthermore he would have been more likely to introduce interest rises sooner. Investors have therefore sold USD in favour of other currencies.

Such is the focus on the US dollar this week that  yesterday ECB President Mario Draghi managed to hold a press conference that barely attracted any press coverage. In what would normally be a market moving statement he told a group of reporters in Berlin, that the economic recovery in the eurozone remains “fragile” and reiterated that interest rates will remain at current or lower levels for an “extended period”. However EUR remained steady versus GBP.

Today sees UK and US Consumer Price (Inflation) data and a key sentiment report in the ZEW Survey from Germany – lets see if these all manage to stay under the radar too.

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