Thursday, May 7, 2015

Janet Yellen’s version of “irrational exuberance” | Choppy days in the Forex markets

Janet Yellen appeared at a symposium earlier in the week, in conversation with Christine Lagarde, Managing Director of the International Monetary Fund. Those of us who trade Foreign Exchange were conscious of the possibility that either of these two powerful women might make a comment or comments that could affect currencies, in particular the US dollar. Would Ms. Yellen give any kind of heads-up on the imminence or otherwise of the raising of core interest rates Stateside?

In the event the conversation did nothing for Forex, but remarks were made by the Chair of the Federal Reserve to the effect that, in her opinion, equity valuations are high, and there could be potential dangers ahead for stock investors. Equity markets on both sides of the Atlantic went into a bit of a spin when these words were reported. The comment echoes that of one of her predecessors, Alan Greenspan, who famously warned of “irrational exuberance” in stocks. For the record, his remarks made no lasting difference.

There are a number of pundits who seem to resent Ms. Yellen’s contribution, not least Jim Cramer, who has a show on CNBC. He wrote a piece for The Street, entitled “Why is Janet Yellen suddenly a stock commentator”.

One reason might be that she is one of the foremost and, by virtue of her position, one of the best informed, economists on the planet.

Choppy days in the Forex markets

Yesterday and the day before were choppy, unappetizing days on the Forex markets. The Pound Sterling is in a holding pattern in advance of an outcome of the UK General Election, traders who watch the US dollar are holding their breath for the Non-Farm payrolls number later today, and the Euro is bobbing about in consequence of the lack of direction of those two of its major global counterparts. We must watch and wait.

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