EUR/USD: Euro Gains as Bernanke Suggests Stimulus Measures to Remain

The Euro is deemed to sustain its strength against the US dollar today as cautious comments by Federal Reserve Chairman Ben Bernanke over the US economy suggested that the central bank was in no hurry to withdraw monetary stimulus. In Europe, ratings agency Standard & Poor’s raised its outlook on both Luxembourg and Finland in another sign that the Euro Zone has made considerably ground in its crisis fight, boosting the single currency in turn.

Speaking at the University of Michigan, Ben Bernanke said that the economic recovery remains fragile and warned that the economy was at risk from political gridlock over the deficit. Although he cited some bright spots, including the energy boom, an improving housing market and resilient consumer confidence, the economy has a long way to go and that the economy is approaching a number of other critical threats. He noted that Congress has still not resolved $109 Billion in spending cuts scheduled to take effect this year, a possible government shutdown a likely heated battle to raise the debt ceiling. Bernanke expressed most concern over a failure to raise the debt ceiling, which could lead to a further downgrade of the US credit rating similar to what occurred after the first debt ceiling stand-off in August 2011.

According to economists, such tone indicated that the Fed plans to stick with the unconventional programs it is currently using to lift output. Earlier during the day, president of the San Francisco Federal Reserve Bank John Williams said he expected that the Fed’s bond-buying program would be needed well into the second half of 2013. With Bernanke seemingly assuring the markets that the Fed was committed to its easing bias after hawkish sentiments from the minutes of its December meeting caused speculation, the common currency is set to gain.

Meanwhile, optimism over the Euro is seen to continue today after the S&P upgrades its outlook on the credit rating of Luxembourg, both holders of triple-A ratings, from negative to stable. In separate statements, the agency said that the risks to Finland’s financial, economic and policymaking environment emanating from the crisis have been contained and that such outlook will remain to be the case for the rest of 2013. Meanwhile, for Luxembourg, the agency said its strong government balance sheet and stable political environment are sufficient to outweigh risks to its economy. On such optimism, a long position is advised for the EUR/USD trades today.

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Comment by sabbir on January 15, 2013 at 8:19am

yes keep on buying, then who will book the profit on long?  


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