In his semi-annual testimony to Congress, Fed Chairman Bernanke stated that there were tentative signs of stabilisation in the economy and that the pace of decline appeared to have slowed significantly.
Bernanke also re-iterated that the bank did have a credible exit strategy from the ultra-loose interest rate policy. The bank is clearly taken this aspect of policy very seriously, especially as there was a article on exit strategies in today’s Wall Street Journal ahead of the Fed testimony.
These comments illustrate that the Fed is very sensitive to the issue of maintaining confidence in the US assets, particularly the Treasury market and dollar.
Nevertheless, Bernanke also stated that the Fed would maintain a highly accommodative monetary policy for an extended period and there is still very little chance of a near-term tightening. The Fed chief’s comments will again be watched closely on Wednesday with a particular sensitivity to any comments on the dollar.
Risk appetite faded to some extent following Bernanke’s comments, especially after the warnings on the commercial real-estate market. There was also fresh speculation that US lender CIT would file for bankruptcy despite the US$3.0bn credit line secured early in the week. From lows near 1.4280, the dollar recovered back to the 1.4180 region before consolidating near 1.4220 as the dollar was unable to secure sustained support.
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