Obama’s expected nomination of Yellen boosts the dollar
(Reuters) – Janet Yellen’s expected nomination to head the Federal Reserve boosted the dollar and was set to give Wall Street an early lift on Wednesday as it ended uncertainty about the post, though the U.S. budget deadlock continued to weigh on markets.
A White House official said U.S. President Barack Obama would nominate Yellen, currently deputy chief at the Fed, to head the central bank later in the day.
She is seen as largely sticking to policies of her predecessor Ben Bernanke, including maintaining the bank’s commitment to stimulus to keep economic recovery on track.
“In the face of improving (economic) figures but looming uncertainty, markets can expect Yellen to continue with a cautious hand on the tiller,” said Anne Richards, chief investment officer at Aberdeen Asset Management.
However, many market participants expect the positive impact of the nomination to be short-lived given the lack of progress to end political wrangling in Washington that could lead to a U.S. debt default next week.
Those worries sent European shares .FTEU3 to a fresh one-month low on Wednesday, although the Yellen decision attracted some buyers expecting the U.S. central bank to move carefully in unwinding its equity-friendly stimulus. .EU
“It’s the Yellen effect that has brought financial market stabilization,” said Oliver Roth, head trader at Close Brothers Seydler.
Earlier the MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had dipped on the budget deadlock, losing 0.3 percent, and MSCI’s world index .MIWD00000PUS was still down 0.1 percent, its lowest level since September 9.
U.S. stock index futures pointed to a slight rebound in the Standard & Poor’s 500 index .SPX, which shed 1.2 percent on Tuesday for its biggest one-day drop in nearly six weeks. .N
Investors remain nervous over the implications of the deadlock in Washington as shown by a rise in the implied volatility on euro zone equities, seen as a crude barometer for risk aversion, which has jumped 30 percent in nearly two weeks to 21.1. .V2TX
It was only at two-thirds of the level seen in the summer of 2011 during the last big crisis over the debt ceiling.
The main U.S. fear gauge, the CBOE Volatility Index .VIX, stands at its highest level since June 20 having risen 21.5 percent in the past two days on heavy volumes.
