FOREX NEWS-Bernanke inflation risk comments ignite dollar rally
Tue Jun 3, 2008 4:10pm EDT
(Recasts, updates prices, changes byline)
* Dollar surges as Bernanke warns on weak currency impact
* Remarks suggest Fed unlikely to cut rates again
* U.S. factory orders unexpectedly rise in April
By Lucia Mutikani
NEW YORK, June 3 (Reuters) - The dollar surged on Tuesday after Federal Reserve Chairman Ben Bernanke warned the weak U.S. currency posed a risk to inflation, adding to views the central bank could raise interest rates later this year.
Bernanke's rare warning, made during an address to a conference on monetary policy in Barcelona, Spain, was seen by some market participants as the Fed's version of a "strong dollar policy," lending the embattled currency much needed support.
"The fact that these dollar supporting remarks have emerged from an institution with the means to control interest rates is somewhat unprecedented and bears the signs of the central bank's bid to support the U.S. currency," said Ashraf Laidi, chief FX strategist at CMC Markets in New York.
The euro <EUR=> dropped to $1.5411, its lowest level in nearly three weeks, surrendering overnight gains that had pushed it as high as $1.5628. In late New York trade, it was quoted around $1.5461, down 0.5 percent on the day.
The New York Board of Trade's dollar index, which charts the dollar's performance against a basket of six currencies, jumped to 73.501 .DXY, the highest since May 14.
"We saw the market turn around quite dramatically as soon as the comments hit the wire," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.
"The market was struck primarily by the fact that a Fed governor would make comments specifically relating to the U.S. dollar, which is usually the purview of the U.S. Treasury Department. That underscores that the dollar is high on the minds of the Fed policy-makers."
Bernanke, speaking via satellite to the conference in Barcelona, said: "We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations."
The U.S. central bank and the Treasury, he added, were continuing to "carefully monitor" currency market developments.
Aggressive interest rate cuts by the Fed, aimed at warding off a recession, have undermined the dollar through a reduced yield appeal of dollar-denominated assets.
Short-term interest rate futures, which track market expectations for Fed policy, are pricing in a high probability of the central bank tightening monetary policy by year-end.
They showed a 98 percent perceived chance the Fed will leave its benchmark overnight lending rate at 2 percent this month after slashing it by 3.25 percentage points since mid-September.
RED FLAG FOR INTERVENTION
Analysts said Bernanke's comments could be part of coordinated steps with other monetary authorities and it would not be surprising to see joint intervention in the foreign exchange market.
"The language used is a de facto red flag that currency intervention is on the table. I think intervention risk is very high and we could see it Wednesday and it would involve G7 central banks," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
A report showing a surprise rise in U.S. factory orders for April also buoyed the dollar. For details, see [ID:nN02428961].
The dollar raced to a session peak of 105.56 yen <JPY=>, but gave up some gains as U.S. stocks fell and Lehman Brothers (LEH.N: Quote, Profile, Research) tumbled following a Wall Street Journal report the investment bank might need raise up to $4 billion in new capital.
Lehman later said IT did not access the Fed's discount window on Tuesday and said it "finished the second quarter well above $40 billion" in liquidity.
That saw the dollar extend gains versus yen to last trade at 105.14, up 0.6 percent on the day. (Editing by Leslie Adler)
Daily Forex Market News Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
here.
Forex News Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."
Actionable trading levels delivered to YOUR charts in real-time.
GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium Mon 23 Apr 2018 A All Day- Flash PMIs AA 14:00 US- Existing Homes Sales Tue 24 Apr 2018 AA 01:30 AU- CPI A 08:00 DE- IFO Survey A 14:00 US- CB Confidence A 14:00 US- New Homes Sales Wed 25 Apr 2018 AA 14:30 US- EIA Crude Thu 26 Apr 2018 AA 11:45 EZ- ECB Decision A 12:30 US- Durable Goods A 12:30 US- Weekly Jobless Fri 27 Apr 2018 AA 03:00 JP- Bank of Japan A 08:00 DE- Employment A 08:30 GB- GDP A 14:00 US- University of Michigan
John M. Bland, MBA co-founding Partner, Global-View.com
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
Are you
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.
RSS News Feed
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
