The US dollar weakened after Federal Reserve Chairman Ben S. Bernanke suggested that the Fed should maintain stimulus as “US economic growth so far this year looks to have been somewhat slower than expected”.
Such dovish statement wasn’t surprise for Forex traders after the terrible economic reports last week. Still, the speech was negative for the dollar as it reduced probability that the Fed will lift lending rates. Bernanke commented on the health of the US economy and the monetary policy:
Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. At the same time, the
longer-run health of the economy requires that the Federal Reserve be vigilant in preserving itshard-won credibility for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term.
The Chairman added that the Fed will react accordingly should the economic fundamentals change. For now, such change isn’t expected and analysts forecast further weakening of the economy. According to the estimates of experts before the reports on June 10, the US import prices decline 0.6 percent, while the federal budget balance has a deficit of $157.6 billion.
EUR/USD traded at 1.4664 as of 1:14 GMT today after it rose yesterday from 1.4573 to 1.4690. GBP/USD traded at 1.6419 after climbing from 1.6355 to 1.6443. USD/JPY dropped today to 79.89 from 80.08.
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