Yellen Next Fed Chairman Raises Risk Capped by U.S Political Impasse and IMF Outlook Cut - 9.10.2013

As the political standoff that drove U.S government to closure and is now threatening the world with a U.S default continues, the Japanese Yen was weakening on Barack Obama’s decision to nominate Janet Yellen to succeed Ben Bernanke at Fed’s head next year. Janet Yellen is considered quite dovish and that interpreted by market that Fed is likely to remain accommodative for a longer period, boosting demand for riskier assets and thus setting pressure on the Yen.

Nonetheless, Barack Obama repeated that would talk with House speaker John Boehner after the shutdown ends and the risk of default is eliminated, though Republicans insist on spending cuts and modifications on Obamacare law. Therefore, Yellen effect on US dollar demand is capped by political impasse, even though we still expect a last minute resolution. In addition, yesterday the IMF cut growth outlook for emerging markets by 0.5% for 2013, while advanced economies outlook was mostly unchanged. Global economy growth outlook therefore downgraded to 2.9% for 2013 compared to 3.2% in July report, weakening further market sentiment.

Now concerning currency moves, the greenback against its major peers was on the upside advancing from support at 79.83 to as high as 80.18, recovering to a new high of the week. The US dollar increased its value mostly against safer currencies like the Japanese Yen and the Swissy. The USDJPY climbed on Wednesday morning from 96.82 to 97.46 or by 0.66% and the USDCHF surged from 0.9015 to 0.9077, percentagewise both currency pairs had the same increase.

As of typing though, the European markets opened in red color falling by around 0.25% weighing on the common currency, the sterling and the swiss franc, ahead of British Trade Balance and German Industrial Production releases today as well as BOE MPC Statement tomorrow. The EURUSD started its downside earlier today from 1.3603 and reached as low as 1.3523, technically is bearish, heading towards 1.3506. The GBPUSD also declined from 1.6122 to 1.6030 creating a double top in the hourly and giving back all of its yesterday gains. The USDCHF rose above 0.9077 and is now outperforming the USDJPY that remained below 97.46 on European equity session open.