9 Oct 2013
As the Yellen effect fades, markets return their attention to US debt ceiling woes
FXstreet.com (London) - Despite the overnight risk-on sentiment driven by news that Barack Obama was poised to nominate the ultra-dovish Janet Yellen as the successor to Federal Reserve Chairman Ben Bernanke, attention has returned to the ongoing congressional crisis as both parties remain in deadlock.
Janet Yellen’s appointment comes as no surprise. She is a central banker in the mould of Ben Bernanke and has been the front runner since the previous favourite, Larry Summers, withdrew himself from the race last month after staunch opposition from Democrats. However, the confirmation that Yellen has been nominated means that there is very little risk of aggressive tightening of policy from the Fed at any point soon.
But, as anticipated, the Yellen effect on markets is now waning and focus is returning to the ongoing US government shutdown and the looming 17 October hard ceiling for US debt. Should congress fail to pass a bill extending the debt ceiling, it will be unable to service its debts.
Despite talk of negotiations between Republicans and Democrats, there doesn’t actually seem to be much of a conversation taking place between the two parties beyond Republicans finding 50 different ways of saying: “We’ll extend the debt ceiling if you delay Obamacare.” And the Democrats sticking to the one way of saying: “No.”
As the debt ceiling stand off returns to focus, the wind has been taken out of the USD/JPY rally. Still up 0.31 percent on the day, it has shed some gains to JPY97.1770 from a high of JPY97.4700. The USD/JPY pair has been perhaps the most correlated to sentiment on the Hill, with yen strengthening on deadlock pessimism.
Janet Yellen’s appointment comes as no surprise. She is a central banker in the mould of Ben Bernanke and has been the front runner since the previous favourite, Larry Summers, withdrew himself from the race last month after staunch opposition from Democrats. However, the confirmation that Yellen has been nominated means that there is very little risk of aggressive tightening of policy from the Fed at any point soon.
But, as anticipated, the Yellen effect on markets is now waning and focus is returning to the ongoing US government shutdown and the looming 17 October hard ceiling for US debt. Should congress fail to pass a bill extending the debt ceiling, it will be unable to service its debts.
Despite talk of negotiations between Republicans and Democrats, there doesn’t actually seem to be much of a conversation taking place between the two parties beyond Republicans finding 50 different ways of saying: “We’ll extend the debt ceiling if you delay Obamacare.” And the Democrats sticking to the one way of saying: “No.”
As the debt ceiling stand off returns to focus, the wind has been taken out of the USD/JPY rally. Still up 0.31 percent on the day, it has shed some gains to JPY97.1770 from a high of JPY97.4700. The USD/JPY pair has been perhaps the most correlated to sentiment on the Hill, with yen strengthening on deadlock pessimism.