In US, at the testimony to congress, Fed Chairman Bernanke stated that "the situation in Europe poses significant risks to the US financial system and economy and must be monitored closely". He also indicated that "the Federal Reserve remains prepared to take action as needed to protect the US financial system and economy" due to the risks posed by "the situation in Europe". Regarding further easing by the Fed to boost the US growth, the Chairman stressed the Committee has a number of options to consider and if it's decided that "further action is required", the Committee would also "decide what action is appropriate or what communications are appropriate". Yet, he did not indicate what options are being considered. That's somewhat in sharp contrast to Vice Chairman Yellen's urge for additional accommodation the day before, as she said it's "appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest".
The latest Fed Beige Book described that the overall economic activity expanded at a "moderate", "modest" or "steady" pace in 11 of the 12 Districts (the pace of expansion in Philadelphia slowed slightly during the period). The report also stated that "lenders in most. Districts noted an improvement in loan demand and credit conditions". The economic outlook remained positive but those surveyed "were slightly more guarded in their optimism". Yet, the language used in the report does not seem that the market conditions would lead to QE3.
BoE kept bank rate unchanged at 0.5% and maintained the size of the asset purchase program at GBP 325b. Only a brief statement was released and focus will turn to meeting minutes to be published on June 20 instead. Sterling was lifted by stronger than expected PMI services, which stayed unchanged at 53.3 in May.
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