Currency markets reacted strongly to the news that Larry Summers is withdrawing his consideration for candidacy for the Fed Chairman position, increasing expectations that a more dovish leaning candidate will take over.
One of the front runners now is Janet Yellen, who is likely to continue Ben Bernanke’s quantitative easing polices and loose monetary policy, which tend to weaken the dollar. Hence the dollar was sold off by investors today and U.S. yields are lower.
Of the G10 currencies, the pound and the aussie were the best performers.
Until recently, the dollar has been gaining as investors have been so incredibly dependent on the idea that the Fed will begin tapering soon. Larry Summers was seen to be in favour of tapering so the fact that there is now uncertainty whether the next Fed chief will be pro-tapering has made the dollar more vulnerable.
EURUSD is stronger today at $1.3360 on the Summer news but also helped higher by ECB’s Draghi reiterating forward guidance, while Euro zone inflation data came in as expected.
GBPUSD surged to a near nine-month high of $1.5917 in Asia and hovered near this level in the London session.
USDJPY is down half a percent due to a broadly weaker dollar, while Japanese markets are closed for a public holiday today.
AUDUSD is up 1.5 percent as risk appetite is back on, with the pair rising to $0.9382.
Looking ahead to the U.S. session data, we have Empire State manufacturing index and U.S. industrial production data.Publication source