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Flash: Bernanke inspires market fluctuations - DBS Group

FXstreet.com (Barcelona) - DBS Group analysts note that markets were very different during and after Fed Chairman Ben Bernanke’s testimony before the Joint Economic Committee (JEC) yesterday.

They see that initially there was broad relief after Bernanke played down expectations of any imminent tapering of asset purchases and reiterate tha the Fed’s decision to increase or decrease asset purchases going forward will be data dependent. They write, “Essentially, the jobs markets need to keep improving to strengthen the case for tapering, while the case for increasing purchases will need low inflation to head further south.” This caused US stocks to hit new record highs, while bonds were bought back and the US dollar gave back gains.

They continue to note that this was however, short-lived and markets started to reverse quickly during the latter part of Bernanke’s Q&A session when they realized that the Fed was still paving the ground for its exit strategy. According to the FOMC minutes that were released after the JEC, more FOMC members favored tapering over increasing asset purchases. They feel that increasingly, the option to increase asset purchases is now viewed as a “Bernanke put” in the event that markets react negatively to the Fed’s attempt to reduce stimulus. They wrote, “With the speculation about tapering intact, the US dollar maintained its firm tone. Only this time, it was not on the back of higher, but lower US stocks and bond values.”

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