The news that U.S. President Barack Obama has decided to nominate Janet Yellen to chair the Federal Reserve helped to lift the dollar and eased fears over the current budget deadlock Wednesday. Nevertheless, world stocks dropped for the third consecutive session.
An official from the White House said that Obama would be nominating Yellen, who is currently the Fed’s deputy chief. Her nomination is expected later on Wednesday.
Most observers feel Yellen will lead the Fed’s policy on a similar path of Ben Bernanke her predecessor, including staying with the commitment by the bank to the bond purchasing stimulus program until the economy has recovered and is back on track.
However, most participants in the market, expected that the positive impact of the nomination of Yellen to be short, given the little progress being made in Washington that could lead the U.S. to default on its debt obligations as soon as next week.
Those worries caused shares in Europe to fall to a new low of one month Wednesday just one day after Wall Street saw a sharp selloff.
Futures for stocks in the U.S. pointed to a slight recovery for Wall Street when the session opens on Wednesday, where much attention will be focused on a new round of corporate earnings. The season for corporate earnings started Tuesday afternoon with Alcoa reporting first.
The dovish stance for Yellen on policy implied her appointment was previously set as a net negative for the currency of the U.S., but the budget problem seems to have changed that temporarily.
The dollar was up over 0.5% to 97.3 yen, which took it off a low of two-months of 96.55 it had hit on Tuesday. The dollar was also higher by 0.5% on the Swiss franc.
Congress only has nine more days to act prior to the deadline for the debt ceiling of October 17. Little or no movement has been made in negotiations between the two political parties.