Broker's Notes: Fed commits to “do what it takes”

US Fed’s commitment

US Federal Reserve Chairman Bernanke reaffirmed Fed’s commitment to “do what it takes” to support an economic recovery but stopped short of committing the US central bank  to another round of quantitative easing by agreeing to purchase more fixed income securities for its balance sheet. He added that the US economic recovery was stuttering more than expected and that the central bank was prepared to provide additional stimulus, including buying more longer-term securities, if needed.

UK Sterling

Sterling fell against the dollar on Friday, hitting the day's low after a pledge by Federal Reserve Chairman Ben Bernanke to provide more monetary stimulus if necessary boosted the dollar across the board. Better than expected UK growth numbers failed to boost sterling on Friday as investors sold into initial gains on the data. UK GDP data showed the economy grew 1.2 percent on the quarter and 1.7 percent on the year, stronger than expectations for 1.1 percent and 1.6 percent, respectively. Many investors were keen to shed risky positions ahead of a UK holiday weekend. British markets will be closed on Monday. The pound has risen back above its 200-day moving average, which stands at $1.5452, and charts point that a close above that level would diminish downside risks.

Yen

The Bank of Japan expanded a bank- loan program, stepping up its monetary stimulus for the first time since March after the yen surged to a 15-year high and the government pressured the central bank to safeguard the recovery. The BOJ will boost the amount of funds in the facility by 10 trillion yen ($116 billion) to a total of 30 trillion. Governor Masaaki Shirakawa said in a press briefing that the bank is ready to take more action if necessary, and cited risks to its view that the economy will remain on a recovery track.

The BOJ also said it would offer fixed-rate loans to banks with a maturity of six months, adding that it would keep its overnight call rate target unchanged at 0.1 percent. Japan hasn’t mounted foreign-exchange intervention since March 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Finance Minister Yoshihiko Noda said on Aug. 28 that Japan will take “bold” action if necessary to curb the yen’s surge.

Gold

Gold fell marginally in the early deals of Monday on speculation that four weeks of gains are prompting some investors to sell their holdings after Federal Reserve Chairman Ben Bernanke pledged to safeguard the economic recovery. The metal has climbed 4.6 percent in the past month as investors sought protection amid growing evidence that the global economy is sputtering. In the current calendar year gold has strengthened by 13 percent, reaching a record $1,265.30 an ounce in June, as investors increased holdings to protect their wealth.

US data this week

Market awaits an array of US economic data feed this week. The extent of the U.S. economy's ability to generate jobs would be the highlight of these data feeds and would culminate in Friday's employment figures from US. Projected gains in July U.S. personal income later on Monday could keep a lid on bullion's upside as an improving outlook typically drives more investors away from safe harbours like gold. U.S. non-farm payrolls as a whole are estimated to have shed 99,000 jobs in August, but this was a function of the federal government releasing temporary census workers.    

Source: Richcomm Global, Dubai; www.richcommglobal.com