Dollar Softer, Bernanke Misunderstood
NEW YORK ( BBH FX Strategy) -- The dollar is broadly weaker against major currencies, with moves still confined to recent ranges with the exception of sterling. The euro broke above the 1.3350, rising for three consecutive sessions and returning to the level at the start of the month.
Markets seem to be still reacting to Fed Chairman Ben Bernanke's comments that were, in our view, misinterpreted as dovish. Cable broke above its recent high of 1.5950, returning to levels not seen since November last year.
M&A talk is a factor, with Abu Dhabi reportedly looking to buy a third of the British government's 82% stake in the Royal Bank of Scotland, BP looking to sell North Sea assets worth approximately 2 billion pounds and Lloyds selling a 500-million-pound loan portfolio to U.S. firm Bain Capital.Follow TheStreet on Twitter and become a fan on Facebook. Global stocks are higher, with Asian stocks tracking U.S. equities higher following the comment from Bernanke. The MSCI Asia Pacific Index is up 2% led by gains in Japan and Hong Kong. The Nikkei has filled gap left from last year's earthquake. European shares are higher for a third day, with EuroStoxx 600 up 0.2%, bank shares up 1%. U.S. yields are flat and yields in Italy and Spain are modestly higher, with the 10-year up 5 basis points and 2 basis points. Brazil's Vale sees significant iron ore demand from China, unlike Australian companies last week that were more cautious.
Interpreting BernankeJudging from the press coverage, we suspect many observers have misunderstood Bernanke's comments Monday. They need to be placed in the context of what went before, namely, several hawkish regional presidents spoke, seemingly raising the prospect of a hike as early as next year and a backing up in U.S. yields. His comments justified the continued accommodative policy as necessary to make further progress in reducing unemployment, which he argues requires a faster growing economy. While acknowledging improvement in the labor market, his concerns were twofold: 1) that one could not be sure that the pace of improvement will continue and 2) that with high levels of long-term unemployment and the sheer number of jobs and hours worked below pre-crisis levels, conditions are far from normal. That does not mean QE3 is around the corner or about to be signaled at the next FOMC meeting as some claim. Nor do we expect the Fed to unilaterally disarm by denying itself a policy tool that it argues has been effective.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV