As with many markets today, last night’s comments by the Federal Reserve chairman Ben Bernanke have had a profound effect on the US dollar. The quantitative easing policy is fundamentally a process that weakens the strength of the dollar, as it requires the creation of more money. The beginning of its demise is dependent on the continuing improvement of economic data.
The three triggers that will need to be reached are the lowering of the US unemployment level, the continuing improvement of the US economy and an increase in inflation. The first two triggers have been making solid progress in the right direction, but the inflation rate is still a considerable way away from the targeted 2%.
With last night’s Chinese manufacturing figures indicating that the speed of growth is continuing to cool, and the fact that the US economy is flirting with an end to its stimulus policy, plenty of focus will now shift onto the European Central Bank (ECB).
Many anticipated that the ECB would have already started trying to stimulate the region back into growth; however as yet its only attempt has been the interest rate cut a couple of months ago. It is likely that traders will be hoping to see a considerably more proactive plan come into play in the near future.