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Ben Bernanke’s speech in Jackson Hole didn’t provide any hints about QE3. The expectations were lowered towards the speech, but EUR/USD ticks down anyway.

It seems that the only substantial announcement is that the Fed will lengthen its upcoming meeting in September from one to two days in order to discuss a new set of tools to aid the economy. What tools will be used? Bernanke didn’t provide any news on that.

Bernanke indirectly points the finger to politicians for making moves to help the economy. The word fiscal appears on less than 21 times in the speech.

This paragraph shows “passes the ball” to the government (emphasis mine):

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

There is a small hint about the political stalemate in Washington. The political difficulty was one of the reasons for the downgrade of the US by S&P.

It is clear that the quantitative easing programs ran their course. Another round can only do harm. Without fresh dollar printing, also commodities are falling. Crude oil is at $83.25 at the moment. QE2 contributed to higher oil prices, something that also weighed on the dollar. Update: Oil is recovering at the moment.

EUR/USD is at 1.4380 at the time of writing, falling from 1.4440 before the release, and well within the 1.4350 to 1.4450 range. See the euro dollar forecast for more.

Update: 1.4350 level currently breached. Will it hold?

Update 2: The trend reversed itself, with EUR/USD now pushing higher.

The reaction in the markets is not the usual “risk averse” reaction: also the safe haven currencies are losing against the dollar: USD/CHF and USD/JPY are both up. In disappointments such as these, the yen and the Swiss franc strengthened against the dollar while the euro and pound were falling. An interesting development.


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