An opinion piece by Federal Reserve Chairman Bernanke is helping to put pressure on the September British Pound overnight. This is leading traders to call for a lower opening in Chicago.
The article in the Wall Street Journal highlighted Mr. Bernanke’s opinion that the Fed was “confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate.” Bernanke went on to say in the article that the Fed will maintain ‘accommodative policies” for an “extended period” of time.
These comments are helping to encourage selling of the September British Pound as they suggest the Fed has a plan to systematically withdraw from its current expansionary policy without upsetting the market while maintaining control over future inflationary pressures.
Bernanke’s comments are helping to drive equity markets higher overnight. The thought that the Fed is even considering an exit strategy is a good sign that the economy may be bottoming and in a position to recover.
Additional upside pressure could come in the form of better than expected earnings reports this morning. Traders are beginning to gain confidence in the economy as it seems that each released earnings reports has been better than estimated. This could mean that analysts are making lower guesses to make the numbers look good or that they are really reflecting a better economy.
Treasury futures are trading lower right before the opening as money is shifting from fixed income instruments to the higher yielding equities. The initial reaction to Bernanke’s opinion piece was bullish for the September Treasury Bonds and Treasury Notes.
Bernanke’s comment that the Fed has the tools to control inflation helped the Treasuries gain support. From March to June the Treasuries sold off on speculation that increased supply would drive up inflation and interest rates but Bernanke’s comments seemed to have eliminated that thought from traders’ minds for the time being.
Look for a generally sluggish trade today and perhaps tomorrow because of Bernanke’s testimony before Congress, but be prepared to trade as some comments may trigger strong reactions by traders.
