The FOMC met on Tuesday and Wednesday with the head of the Federal Reserve Ben Bernanke announcing as expected to leave rates unchanged at 0.25% and current policy unchanged. Trading throughout the European session on Wednesday had been subdued as traders awaited Bernanke’s speech and Q&A session to see when tapering of the current quantitative easing programme would occur. Speculation, as to when “tapering” would occur, has been the topic for analysts and market commentators over the last few weeks.
The Chairman of the Feds suggestion that the tapering could happen as early as the end of this year, if the government predictions about the economy are correct, signalled a selloff in US markets. US Treasuries rallied and the USD rallied and indices along with precious metals dumped as traders reacted. In early trading in Europe Gold and Silver are heavily down, both printing multi-year lows, with cable reversing the recent move trading below 1.5450. Investors have been moving out of emerging markets and into safe haven currencies such as the USD and CHF, causing the SNB to reiterate their commitment to the 1.20 franc cap.
On Wednesday evening was also a major event in the City of London, with the annual Mansion House speech for the UK Chancellor George Osborne. He used the even (as widely expected) to signal the governments next move in the privatisation of the state owned banks Royal Bank of Scotland and Lloyds. The revelation that Osborne is investigating splitting RBS into a good/bad bank has been slammed by the CBI and is probably the reason for Hester’s exit.
In one of Mervyn King’s final high profile speeches before he finishes his tenure as Governor of the Bank of England he said that “The UK economy is out of intensive care and in the period of recovery”