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Markets Rally After the US Federal Reserve Clarified Remarks on Monetary Policy

US Federal Reserve Chairman Ben Bernanke recently addressed the National Bureau of Economic Research (NBER) conference in Boston, yet the markets were not focusing on his speech but rather on his comments on monetary policy during the Q&A.

It would mark a clarification on the stand of the US Central Bank’s Quantitative Easing (QE) initiative, clearing up talks about ending the monthly $85 billion bond-buying program, either this year or next year if the overall economy improves. Although the tone was decidedly dovish, it clarified some points that have kept the markets confused in recent weeks.

The bottom line is that monetary authorities favored keeping the stimulus program in place, despite improving economic indicators in the manufacturing, housing and labor sectors of the US economy. The Fed will keep the interest rate at ultra-low levels and there will be no rate hike for a long time. After the Q&A, stocks and bonds were soaring, investors were buying Treasury futures in the after-hours of trading, and the markets are loving it!

The Fed’s asset purchasing or stimulus programs weaken the dollar to spur recovery. The dollar index tracks the performance of the greenback versus a basket of six other major currencies and here are the salient events that moved the currency markets after the Fed minutes were released.

CURRENCIES

EUR/USD

The USD plunges after the comments of Chairman Bernanke hit the markets, falling against nearly all major currencies. In Thursday’s Asian trading, the EUR/USD currency pair surged 0.87% to 1.3095.

USD/JPY

Japan’s core machinery orders rose by 10.5% in May which topped the expectations of Japanese economists for a 1.3% increase. As a result, the USD/JPY pair fell 0.09% to the 99.62 levels.

GBP/USD

The unexpected weak UK manufacturing data made the British Pound drop to its lowest against the US dollar since June 2010. The GBP/USDP pair was trading 0.59% to 1.5105.

USD/CHF

The dollar plunged against the Swiss franc, with the USD/CHF trading down 0.95% to 0.9496.

USD/CAD

The Energy Information Administration announced that US crude oil inventories fell by 9.9 million barrels in the week that ended on July 5, which edged on the dismal expectation for a 3.3 million barrels decline. This made the USD/CAD slip 0.45% to 1.0420.

USD vs. the AUD and NZD

Comments from the Federal Reserve helped the Aussie after the close of US markets, climbing 0.51% to 0.9224. Meanwhile, the NZD/USD currency pair soared 0.98% to 07915.

STOCKS

This is the perfect time to invest in binary trading for Asian indices.Over in the Asian market, stocks rallied after the US Federal Reserve decided to keep interest rates low to aid economic recovery. Acting on speculations that Beijing may stabilize economic growth, mainland Chinese Shanghai Composite Index saw an increase of 3.2%.

Hong Kong’s Hang Seng Index jumped by 2.6% and South Korea’s Kospi soared 2% after the Bank of Korea kept its policy on interest rates to remain unchanged. Similarly, Australia S&P climbed 1%.

Volatility marked the Japanese market as the Bank of Japan cut its growth and inflation reports, with Japanese shares moving to all directions multiple times, and climbing 0.3% as the markets closed.

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