Daily Market Report 13/12/12

Bernanke ties interest rates to unemployment

Yesterday, following a two-day Federal Open Market Committee meeting, Ben Bernanke announced that he will extend the current bond buying scheme designed to lower borrowing rates, by a further $45bn per month. Although expected, the move heavily weakened the dollar against its counterparts as this form of quantitative easing increases the money supply, lowering the value of the currency.

Continuing Bernanke’s aggressive stance towards combatting the economic problems that face America, the Fed Chairman took further, unprecedented action with the interest rates, despite keeping them at historic lows.

Typically interest rates are set with a view to controlling inflation levels within an economy, in an unexpected but very logical move, Bernanke has also tied America’s interest rate to the unemployment rate. Currently at 7.7%, it was suggested that interest rates would not budge until the jobless rate falls to 6.5%.

Gaining from the dollar weakness, the euro regained some of the ground that it had lost following Mario Draghi’s press conference last week. Agreeing an oversight deal, EU finance ministers gave the ECB responsibility of all euro area lenders, enabling the firewall fund created to provide direct bailout to banks.

Elsewhere in Japan, the yen dropped to a nine-month low as the national elections approach. Shinzo Abe, the opposition leader in favour of unlimited easing, is expected to win the vote.

 

Today’s Key Announcements:

  • 09.00am – EUR – ECB Monthly Bulletin
  • Day 1 – EUR – EU Economic Summit
  • All Day – EUR – Eurogroup Meetings
  • 11.00am – GBP – CBI Industrial Order Expectations: expected at -17
  • 13.30pm – USD – Core Retail Sales m/m: expected to increase to 0.5%
  • 13.30pm – USD – PPI m/m: expected to fall to -0.5%
  • 13.30pm – USD – Unemployment Claims: expected at 368k

 See previous Daily Market Reports