Bernanke Testifies

On Tuesday Federal Reserve President Bernanke gave his long awaited testimony in front of the House Financial Services Committee. The testimony was short on details and stock markets responded with a 4.6% fall. The testimony signaled a return of risk aversion and Forex traders flocked to the US dollar and the Japanese Yen.

Plan Lacks Specifics

Markets and Forex traders had hoped that the plan, which was designed to help banks unload ‘toxic assets’ and inject capital, failed to address concerns about the troubled US banking sector. Forex traders responded by buying the Dollar and Yen. Bernanke’s prepared testimony failed to mention the purchase of Treasuries by the central bank. Meg Browne of Brown Brothers Harriman stated, “Bernanke hasn’t said anything yet that is new. The options to buy Treasuries remain open, but he didn’t mention it. The forex market is jumping a bit on this.”

Bernanke Fails to Convince Markets

In yesterday’s trading the Euro was down 0.9% against the Dollar, while the dollar fell 1.2% against the Yen as Forex traders sought safe haven. Bernanke also stated that there was no quick fix for the economic problems faced by the US. Bernanke stated that the Federal Reserve believes that many of the extraordinary measures taken by the Fed have already started to have an effect on market conditions. Obviously Forex traders and equities markets thought otherwise.

Fed’s Approach Inadequate

Many Forex traders and investors see the Fed’s approach as inadequate. Many analysts view the actions of the Treasury and the Fed as a ‘band aid’ approach. In an astounding statement Axel Merk, president and chief investment officer at Merk Investments, stated, “We do not see convincing evidence that the government is moving away from its Band-aid approach to helping banks. By now, the only viable solution left may be to nationalize the financial institutions that are deemed too big to fail; it’s then a political decision whether depositors should carry part of the cost.”

Testimony Disappointing

The effects of the long awaited testimonies by Fed President Bernanke and Treasury Secretary Geithner have been disappointing. Forex traders and investors had hoped that the return to risk appetite would be long lasting.