The White House announced that the President Obama will officially nominate Janet Yellen as the next head of the Federal Reserve – a woman will hold the position for the first time.
Yellen’s nomination to this powerful position was not a surprise after Summers withdrew his candidacy. Yellen, currently Bernanke’s Vice Chairman,  is considered a dove, that would potentially keep loose monetary policy for longer. But as this was already priced in, the markets reacted with a stronger dollar.
Yellen is a long serving FOMC member, and from 2010, Bernanke’s second in command. Contrary to Bullard, Fisher and Dudley, she kept a relatively low profile in her speeches, but her messages were clearly in line with those of Ben Bernanke – leaning to the dovish side.
Obama will announce her nomination, which is likely to be approved by a Senate committee. Assuming a swift process, she will enter Bernanke’s shoes in January. With the government shutdown and debt ceiling crises still with us, QE tapering will likely be postponed and await Yellen. As a dove, will she keep QE at current levels for longer? Or, with her dovish image, perhaps she will want to show a hawkish side?
This is still to be seen. At the moment, the dollar is stronger on a “buy the rumor, sell the fact†reaction. Here is how it looks on EUR/USD:
- EUR/USD drops to 1.3550. Loose monetary policy is also Europe’s future.
- USD/JPY is rising above 97 to 97.40. This is helped by a rise in the Nikkei stock index. More QE = stronger stocks.
- GBP/USD fell from above 1.61 to 1.6050. The BOE convenes tomorrow.
- USD/CAD extends its rise and moves towards 1.04. The US government shutdown is bad for the Canadian economy.
- AUD/USD is holding up quite well so far.
Will this trend continue?
Further reading: USD Index Could Make A Corrective Bounce – Elliott Wave Analysis
