The pound remained close to a 2 month high against the US dollar yesterday, a day where risk appetite made a comeback after the markets interpreted the words of US federal Reserve Chairman Ben Bernanke on Monday night as suggesting that the Fed remains unconvinced about the strength of the economic recovery in the US and would consider sanctioning a further round of Quantitative Easing (QE) in the USA.
Data yesterday seemed to support Bernanke’s words of Monday night. The US Conference Board said its confidence gauge fell to a weaker than expected 70.2 in March from 71.6 in February. A separate report showed home prices in 20 major US cities fell in January for the fifth consecutive month.
In an interview with US television station ABC, Bernanke said that the increase in gas prices could boost inflation in the following months, decrease consumer income and cause a “hit on growth”.
However, Bernanke added that “at this level we don’t think yet that -particularly given the other good news we’ve seen in labour markets and so on- we don’t think it’s going to be anything that’s going to stall the recovery.”
Nevertheless, the Fed Chairman remains highly cautious, saying that unemployment remains too high and insisted that it is “far too early to declare victory” on the economic recovery. Bernanke added that the FED didn’t rule out the possibility of sanctioning any further stimulus measures because the Fed doesn’t know what the future holds and needs to keep all its cards on the table.