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Flash: Bernanke´s speech has effected market dynamic - 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 note that initially, there was broad relief after Bernanke played down expectations of any imminent tapering of asset purchases. The Fed’s decision to increase or decrease asset purchases going forward will be data dependent and 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. They note that US stocks hit new record highs, bonds were bought back and the US dollar gave back gains.

This was, however, short-lived. They see that 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. They write, “According to the FOMC minutes that were released after the JEC, more FOMC members favored tapering over increasing asset purchases. 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 feel that with the speculation about tapering intact, the US dollar maintained its firm tone, adding, “Only this time, it was not on the back of higher, but lower US stocks and bond values.”

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