What do we think Ben Bernanke is going to say today and how closely will the market be listening?

First of all, the market is going to listen very carefully, and secondly, we have to compare what Bernanke is going to say when compared to the interest rates statement which was delivered last Wednesday. Now as you know, the interest rates statement was putting the Federal Reserve at a neutral interest rates stance. And I guess that after the statement have been released, there have been a lot of negative news, not so much on the economic front but it had been on the financial sector. So he is going to be asked by people participating in that joint committee, what the Fed believes is going on in the financial sector and he has to give an answer. I guess that overall, his statement today is going to be more dovish than the interest rates statement and that is going to be the key for the foreign exchange market. So I assume the US dollar has more weakness ahead.

Well I was going to ask you, is there anything that he can say or indeed do that can stop this slide on the dollar?

Well, we have to figure out where the problem is. We have so far a US-centered problem which has to do with the housing market and has to do with related financial sectors and mortgage market and so forth. And that means the United States do need higher net exports as a buffer to support the economic growth to make sure that that economy is not slipping into a recession.

What about the oil prices? We are seeing record highs once again today really gonna be touching clearly I would expect 100 dollars a barrel some time soon. How worrying is that?

Well, as far, oil prices did not really play in a lot typically because oil prices are still lower in the real terms than they were in the 80s. So if you do the inflation adjustments, then the price of oil in the 80s was higher than the current oil price. That's smooth change when we are seeing oil prices moving above 105. The second point is that we are using less oil relative to GDP and relative to disposable income. But of course the pace of the increase is a matter of concern. It's working inflationary. It does paralyze central banks to some extent. And therefore, it is a point of worry and I am a bit surprised that the equity markets are holding up so well. We have to consider what are the economic consequences of that and obviously it does not look too good to if you have a forecast of rise of about 6 months or a year.

Notes:

Dovish: Dovish refers to an economic outlook which generally supports lower interest rates. Doves take the position that inflationary pressures are low enough for low interest rates to be desirable