Fed Warns Against Excessive Speculation

A stronger dollar weighed in on commodities across the board during Friday and Monday morning trades. The USD has continued strengthening towards the Japanese yen. After the break through of the critical 100 hurdle, the USD is trading at 101.90 yen a dollar. The weak yen is giving Japanese equities a strong boost, while other Asian stocks are trading lower. Both oil and gold prices fluctuated wildly during Friday’s trade. The EUR/USD trades at 1,2973.

Brent crude was down to USD 101 a barrel on Friday, but has recovered to 103.10. Gold dipped to USD 1415 and is trading at 1431. The drop in commodities prices weighed on the Australian dollar, which eased to an 11 month low of 0,991. The G7 finance ministers meeting on Friday cemented the firmness of the dollar when Japan avoided criticism for its bold reflationary policies. “Abenomics” has led to a steady decline in the Japanese yen, which improves export earning prospects and underpins the export-reliant Japanese economy.

Japan for years has been urged to revive its economy. When Japan takes action, few countries are in a position to complain. Other federal banks as the U.S. Federal Reserve (FED) and the Bank of England have printed money as has the Bank of Japan. The steep 25% depreciation of the yen since last November is creating tension about to the health of financial markets and the global economy. Retail data from the U.S. and China will be presented later this week, and are up for close scrutiny.

Fed Chairman Ben Bernanke raised these concerns during a speech in Chicago late Friday. Bernanke warned against excessive risk-taking in financial markets in a hunt for profit. Bernanke saw the strong drive in the dollar as the latest manifestation of a desperate global hunt for yield. He expressed concern that banks are resorting to excessive speculation due to low interest rates and fall in bond prices, highlighting the danger that easy monetary policy could create a new asset bubble with stock prices running ahead of market fundamentals.