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Ben Bernanke said that when QE2 ends, the Federal Reserve will continue reinvesting maturing assets. Stopping to reinvest and letting the balance sheet shrink, is a separate decision that will be taken sometimes in the future. This is rather bearish. Dollar is losing ground on this QE2 Lite decision.

The Chairman of the Federal Reserve speaks for the first time ever following a rate decision. The press conference will give us some ideas to what Bernanke thinks about inflation, what the situation of the US economy is, and of course – what will happen when the quantitative easing program ends – will the Fed continue printing dollars, QE3? Will the central bank reinvest maturing assets? Or will it let the balance sheet shrink? The live broadcast is embedded below, and commentary about his words, gestures and his impact on currencies will be updated constantly.

Update: Press conference has ended.

All in all, the statement was quite dollar dovish – AUD/USD breaks to new historic highs, GBP/USD breaks above 1.66 and EUR/USD advances nicely. Other currencies gain as well. Gold is almost at $1525 – a new record here too.

Highlights:

  • Balance sheet will remain unattached – the Fed is not tightening and hasn’t decided upon this yet – this is QE2 Lite if you wish.
  • Bernake plays down inflation.
  • GDP expected to be low. Forecasts lowered.
  • Bernanke also addresses the fiscal issue and surprises by saying that debt is unsustainable.

Live Broadcast


Broadcasting Live with Ustream.TV

FOMC Statement

The FOMC Statement, released at 16:30 GMT,  brought very little news. It was more or less a copy-paste of the previous statement. In short – rising inflation is monitored but is a product of rising commodity prices and is merely “transitory”.  Interest rates will remain at a low rate for an extended period of time – as usual.

And regarding QE2, it will continue as planned until the end of the current quarter.  What will happen after June 30th? Perhaps we’ll get some answers now.

Most currencies gained little ground against the greenback following the statement, but the moves are limited. Here are some thoughts about with which currency should you trade the Fed.

Live Blog

17:58 (pre presser) – EUR/USD is at a fresh 16 month high of 1.4725, Gold is at an all time high of $1522. Both stand out. Other currencies are rising, but within ranges.

18:09 (pre presser) – EUR/USD stabilizing at 1.4730. USD/JPY is around 82.30, GBP/USD at 1.6565, USD/CHF at 0.8770 (far from lows).

18:15 Bernanke, sitting down, starts by stating that he’ll try to reflect the different views. His voice is a little bit trembling.

18:18 Bernanke reads from the statement. EUR/USD eases to 1.4710.

18:20 He talks against deflation. This is dollar bearish. Housing sector is depressed, employment is improving. Moderate recovery to continue. Acceleration only at 2012, 2013.

18:22 Re-iterates the stance that inflation is transitory, and that it will fall later on. Dollar bearish.

18:25 A return to full employment remains slow – monetary policy will remain  accommodative, and yet again, inflation will return to normal. No need to tighten policy. EUR/USD rises to 1.4725.

 

18:27 Questions begin! What will be the GDP? This follows the lowering of the GDP forecast by the Federal Reserve – Bernanke explains why the economy is slowing down – dollar bearish.

18:29 Asked about the meaning of “Extended period” regarding the rates. Answer – we look at the labor market. Only afterwards, inflation is mentioned. Reiterates the talk about inflation falling later on. Bernanke siad he doesn’t know exactly when it will happen. This is negative for the dollar. EUR/USD at 1.4720.

18:31 Question about the dollar – Bernanke passes the ball to Geithner. Re-iterates “strong dollar” policy. Bernanke talks about the mandate – not answering the question.

18:33 Bernanke talks about the safe haven effect that strengthen the dollar. EUR/USD eases to 1.4715, very temporarily.

18:35 Answering the question about the painful rise of gasoline prices, Bernanke talks about emerging markets and the Middle East. He says that Federal Reserve can’t do anything about this. “Fed can’t create more oil”

18:36 EUR/USD breaks higher to 1.4744 as Bernanke is generally very dovish.

18:38 Bernanke talks about the vast amount of jobs that were lost since the outbreak of the crisis and shows some sympathy for regular Americans. Focusing on the painful job market is yet again dollar bearish.

18:41 Asked about the end of QE2 – one of the big questions, Bernanke says that the program will end as planned. EUR/USD loses ground to 1.4725 on this semi-hawkish statement.

18:42 Fed to Reinvest Maturing Assets – Dollar Bearish

18:43 A decision about stopping the reinvestment of the maturing assets awaits a further decision – this is tightening and hasn’t been decided upon yet.

18:46 Bernanke claims that QE2 works – in financial markets.

18:49 Eventually, job growth will create inflation. It seems very far…

18:52 Fed doesn’t have tools for lowering unemployment in the long term.

18:54 Asked about the S&P credit warning. Is Bernanke concerned? No – Bernanke says that S&P didn’t tell us anything and hopes that Congress will have to address this problem. He says that the fiscal deficit is  unsustainable.

18:57 Once again, Bernanke says that inflation is muted. EUR/USD rises to 1.4740 once again.

18:58 Bernanke’s voice sounds much better – not trembling any more. He seems confident more than earlier.

19:02 After expressing sympathy with the people of Japan, Bernanke talks about the dual mandate. AUD/USD is at 1.0845, close to historic highs.

19:05 Bernanke talks about a strong dollar, but the markets aren’t convinced – AUD/USD crosses 1.0850. EUR/USD finds some resistance at 1.4745.

19:07 Bernanke talks about transparency. He seems pleased by the question. More things will be done in the future.

19:10 GBP/USD breaks above 1.66. EUR/USD approaching 1.4750. Dollar retreats across the board.

19:12 Press conference ends – Bernanke ended with hope that the US economy will recover.

See wrap up above.

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