The dollar tumbled against the euro, breaching the 1.48-level in the face of sharply divergent comments from each respective central bank’s chief. ECB President Trichet hinted at further tightening on the back of Eurozone economic strength, while Fed Chairman Bernanke offered a somber assessment of the economy and raised expectations for a 50-basis rate cut at the next policy meeting.
Chairman Bernanke said the Fed stands ready to take “substantive action” to support growth and that further easing “may well be necessary” in light of risks to growth. While the December jobs data was disappointing, Bernanke said it would be a mistake to read too much into one report. Nevertheless, he feels the baseline outlook for 2008 has deteriorated and the downside risks are now more pronounced. Further, Bernanke said that inflation expectations remain reasonably anchored.
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