Mark Carney, the new head of the Bank Of England, got his tenure off with a bang today by doing nothing more than releasing a statement. Actual policy at the BOE didn't change but Carney decided some clarification was required: 

The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.

I think that means the market might be expecting a rate hike but we ain't playing. It is amazing that such a simple statement could get so much attention but the FTSE tacked on 3% and the Pound fell 2 cents against the US Dollar. The most potent weapon in the monetary arsenal would appear to be a word processor. Mario Draghi was even more explicit:

The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.

I have no idea what subdued monetary dynamics means but the rest of the statement is pretty clear. The ECB is keeping rates low until hell freezes over or France figures out a way to create economic growth neither of which seems imminent. The Euro promptly took a header and stocks rallied from Milan to Paris to Madrid to Frankfurt. It appears that Europe has finally joined the currency wars with a shot across Bernanke's bow. 

This game of catering to the needs of market participants over real economic needs was started by Bernanke and his fetish for transparency. The original "extended period" was the Fed's long slow march of 1/4 point rate hikes that kept Chuck Prince up and dancing long after the music stopped. That worked out so well that Bernanke decided to give it another go with QE forever. Now we're in a postion where anything that interrupts the monetary morphine drip sends the market into a tantrum and Bernanke to the Hilsenrath hotline. I don't see how he extracts himself from this self imposed hell without crashing the markets but with the BOE and ECB pushing down their currencies he may not have to anytime soon.

The most significant development here is the drop in the Pound and the Euro. With Japan doing the Abe shuffle, the Yen dropping like its hot, and European growth dependent on German exports, Draghi apparently decided it was time to enter the currency fray. The economic cognoscenti have all along prescribed currency devaluation as southern Europe's only hope and it appears Draghi has finally got the message. The Germans, dependent on exports to the rest of the world now that the south can't afford BMWs, probably won't even mind.

With the US Dollar on the rise and inflation expectations already falling, it will be interesting to see if the tapering talk continues. My guess is that Bernanke will see those conditions as carte blanche to keep on QEing until he rides off into the speaking circuit sunset. Even if US economic data improves, a rising dollar may allow Bernanke to keep the monetary pedal to the metal. Draghi and Carney have opened a new front in the currency wars. Your move Bernanke.