The week begun with rugged, volatile trading yet ended in a whimper as Friday’s trading resembled the tranquil market from Thursday. The euro and Swiss franc posted miniscule increases and were the top performers as the Australian dollar and British pound lagged.

Newsflow within the North American program was light. The market was primarily processing China’s decision to increase its bank reserve ratio and Fed Chairman Ben Bernanke’s harshest words yet for China.

The trading day began having a moderate risk-off theme after the reserve ratio hike. China possesses a creeping rising cost of living issue that is probably going to grow into a more problematic climb. Officials raised the reserve ratio last week and did so yet again on Friday, by fifty basis points. The move cooled commodity prices and is a threat to world wide expansion, particularly in the Asia-Pacific region. The results was a 50 pip fall in the Australian dollar.

Ben Bernanke wouldn’t specifically name China nonetheless mentioned its steps could contribute to a gloomy result. „Although the parallels are certainly far from perfect, and I am certainly not predicting a new Depression, some of the lessons from that grim period are applicable today,“ Bernanke said. „In particular, for large, systemically important countries with persistent current-account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.“

Fed Chairman Ben Bernanke also called for U.S. politicians to perform more to stimulate the overall economy and minimize unemployment. „On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,“ he said. „As a society, we should find that outcome unacceptable.“

Bernanke remarks were more geared at the importance of financial stimulus rather than deficit cutting for the short term. If such policy solutions are carried out, they will weigh on the U.S. dollar.

„In general terms, a fiscal program that combines near-term measures to enhance growth and strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve,“ he said in a speech in Frankfurt. Content provided by AroundFX.com

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