The markets react to Larry Summers' withdrawal

Markets threw a little party this morning after Larry Summers, the polarizing ex-Treasury secretary who was recently viewed as a shoo-in to replace Ben Bernanke as chairman of the Federal Reserve, withdrew his name from consideration late Sunday.

After weeks of opposition from Democrats, Summers said in a letter to President Obama that he has "reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration or, ultimately, the interests of the nation's ongoing economic recovery."

By bowing out, Summers has bolstered the chances of Vice Chairman Janet Yellen, an economic "dove" who is expected to use a lighter hand when it comes to reining in the Fed's quantitative easing policies — in which it flushes the market with $85 billion a month in an effort to keep interest rates down and encourage borrowing.

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Markets, which have grown addicted to the easy money, seem excited about the prospect of Yellen leading the Fed. Here's how they responded this morning to Summers' letter:

Treasury yields are down

Yields have been rising since Bernanke first floated the idea of "tapering," or cutting back on quantitative easing, in May. But this morning, yields on 10-year Treasury notes fell by eight basis points to 2.81 percent, the biggest drop in six weeks, according to Bloomberg. They are likely falling on the assumption that Yellen would taper more cautiously than Summers.

The dollar is down

The ICE Dollar Index, which measures the dollar against six other currencies, has dropped 0.5 percent to its lowest level in a month, according to Bloomberg.

As a dove, Yellen is expected to focus more on bolstering employment than keeping inflation in check. MarketWatch explains how that affects the dollar:

Gold futures are up

Not incidentally then, gold, which tends to rise when the dollar drops, was impacted as well. Gold December delivery is up $14.20, or more than one percent, to $1,321.60 an ounce. But this kind of rise might not hold up over time.

From MarketWatch:

Those next round of headlines are likely to come Wednesday, when the Fed will emerge from a policy-making meeting and possibly announce an update on tapering.