Articles from March 2008

Will Bernanke Provide the Answers?

The Euro continued its rally at the end of last week, hitting all time highs against GB Pound and the US Dollar.

Data released last week, particularly German and French business confidence, proved to be better that expected. This view added support to the ECB’s decision not to follow the US and the UK by cutting rates.

The inflationary pressures in the Eurozone remain the focus of the ECB. Expect the Euro to keep hold of those gains this week with today’s inflation data expected to add credence to their policy.

As last week drew to a close the outlook for GBP became increasingly dovish, with the likelihood of an April rate cut gaining momentum. The BoE has further signalled its intention to ease liquidity pressures in the market, particularly with 3 Month LIBOR still over 6%.

Bernanke’s Testimony to congress will be the crucial indicator for the week. The market expects some difficult questions for Bernanke to answer, namely is the US in a recession and what is being done about it?

The obvious tool at the Fed’s disposal is cutting the Fed Funds rate. Sentiment favours a 50bpts cut on the 30th April at the next FOMC meeting. It has been mooted that measures to nationalise bad mortgage debt will be announced.

Although a radical step, it is aimed at shoring up already weak confidence in the economy and on Wall Street. Friday’s Non-farm pay rolls is expected to provide further evidence of a US recession.

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