Fed offers no hint of monetary stimulus

The euro and commodity prices fell today as gains triggered by a surprise interest rate cut in China quickly evaporated after the Federal Reserve gave no hint of imminent quantitative easing.

Hedge funds were offloading the currencies, with traders citing talk that economic data from China due this weekend may be weak and that easing in the country could have been intended to pre-empt the bleak news.

The euro dropped by 0.3 per cent to $1.2521, falling from a two-week high $1.2626 hit on Thursday following the Chinese rate cut. The Australian dollar also fell by 0.3 per cent to $0.9860. the dramatic turnaround came after Ben Bernanke, the chairman of the Federal Reserve, said that imminent monetary stimulus was not likely.

Bernanke told Congress that the Fed was monitoring considerable risks to the recovery in the US from the debt crisis in Europe, disappointing those hoping he would reveal plans for a third wave of Fed bond buying. Bernanke’s comments overwhelmed China’s surprise move, which cut the cost of borrowing by 25 basis points and handed additional flexibility to banks to set competitive deposit and lending rates in order to fight faltering growth.

However, traders warned that the rate cut may have been pre-emptive so as to soothe markets prior to the release of key Chinese data over the weekend, including inflation, industrial production and retail sales.