Janet Yellen’s testimony, the continuity of Bernanke’s monetary policy

Another week goes by leaving markets in optimistic mode this time, amid Janet Yellen’s testimony in front of the Senate guaranteed the continuity of Bernanke’s monetary policy. She add nothing new to what markets already know, remarking taper will continue as long as supported by data, and rates will remain low for an extended period despite the 6.5% unemployment threshold. But data has been far from satisfying lately, with readings below expectations in employment, trade balance, manufacturing indexes and retail sales among others. Some blame it on the polar wave extending over the north hemisphere this winter, but the fact is that numbers don’t support grow: economic growth stalled in Q1 in the US, and the FED may chose to stay sidelined in its upcoming March meeting. 

Nevertheless, stocks market took a big breath and quickly recovered the ground lost over the last few weeks, with the S&P barely 20 points below its record high this Friday. The movement generated some risk appetite across the forex board, maintaining the greenback in selling mode for most of the week: Pound trades at fresh multi year highs, while the Euro battles to overcome the 1.3700 level. 

For the upcoming week, main attention will center in the UK, with the economy releasing employment and inflation figures, and the Minutes of latest BOE’s meeting. Data has been pretty encouraging lately and if inflation remains contained and unemployment rate improves beyond the current 7.1%, Pound may continue surging to fresh highs against weakened greenback, while gather momentum against other rivals such as JPY and EUR. 

In the US, beside another  possible Yellen testimony, inflation on Thursday will be key: latest weak readings there had diminished even further chances of more tapering and therefore, rate rises in the dark future: a strong reading there may save the USD from its current bearish trend, particularly against not that strong EUR, and JPY.

Japan may also gather some attention, with GDP readings and BOJ monthly meeting, albeit nothing new is expected from the Central Bank. GDP quarterly readingson the other hand are expected with a nice improvement, which may lead to a strong USD/JPY fall.