Tuesday July 21, 2009 - 13:23:31 GMT
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Forex Hound - www.forexhound.com
Dollar Firms Following Comments by Bernanke
An opinion piece by Federal Reserve Chairman Bernanke is helping to put pressure on the GBP USD overnight. This is leading traders to call for a lower opening in New York
The article in the Wall Street Journal highlighted Mr. Bernanke‚Äôs opinion that the Fed was ‚Äúconfident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate.‚ÄĚ Bernanke went on to say in the article that the Fed will maintain ‚Äėaccommodative policies‚ÄĚ for an ‚Äúextended period‚ÄĚ of time.
These comments are helping to encourage selling of the GBP USD as they suggest the Fed has a plan to systematically withdraw from its current expansionary policy without upsetting the market while maintaining control over future inflationary pressures.
Bernanke‚Äôs comments are helping to drive the Dollar higher overnight. The thought that the Fed is even considering an exit strategy is a good sign that the economy may be bottoming and in a position to recover. This is leading traders to favor the U.S. Dollar over economies such as the U.K. and the Euro Zone which may still be going through tough economic times.
Bernanke‚Äôs opinion that the Fed has the tools to control inflation may lead to selling pressure on the Canadian Dollar which relies on higher prices in key commodities such as crude oil and copper to drive the economy.
Forex traders are cutting short positions against the Dollar on the thought that a rate hike by the Fed in the future will give the U.S. an interest rate advantage against those currencies still maintaining rates near 0%. This includes the Canadian Dollar and Swiss Franc.
The Australian Dollar and New Zealand Dollar may also feel pressure today because a shift in policy by the Fed will most likely curtail the huge amount of liquidity that has been flowing to these two higher-yielding currencies.
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