The withdrawal by Larry Summers late on Sunday night from the race to replace outgoing US Federal Reserve Chairman Ben Bernanke sparked a relief rally sending world stock markets sharply up, benefiting the high yielding currencies like the Australian dollar to the detriment of the US dollar.
The withdrawal of Summers from the race seems to leave the way clear for Bernake’s deputy, current Vice Chair Janet Yellen as the clear favourite.
The pound rallied to an 8 month high against the US dollar and maintained its 8 month high against the euro as speculation continues to mount that the improvement in the UK economic outlook will force the Bank of England to lift interest rates sooner than previously thought.
Yesterday, property website Rightmove reported that UK house prices are likely to rise between 4% and 6% throughout 2013 as the supply and demand imbalance grows.
Meanwhile, the Federation of Small Businesses’ reported that UK small business confidence rose in the third quarter as the prospects for hiring and investments were brighter.
The services sector, including financial, technology and business, showed the biggest improvement in outlook.
Overnight, the minutes of the last Reserve Bank of Australia (RBA) meeting were released. At the beginning of the month meeting, the RBA kept its key benchmark interest rate unchanged at 2.5%.
The minutes indicate that while "the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them", it will only return to an easing bias if the incoming data demand it and concern was expressed over risks for rising speculation in the housing market.