USD under Pressure Ahead of Bernanke’s Testimony
The US dollar fell to a 3 and a half month low versus a basket of currencies on Tuesday on expectations that Fed Chairman Bernanke will confirm that US monetary policy will remain loose in a testimony before Congress. Forex investors are expecting the greenback to extend its losses if Bernanke remains cautious about the economy, especially with other central banks looking at hiking rates.
Euro supported ahead of ECB
The euro is expected to remain well supported ahead of a European Central Bank meeting scheduled for Thursday. Although interest rates should remain unchanged, focus will be on the ensuing news conference by ECB President Trichet as investors are not ruling out the possibility he may hint at the possibility of raising rates.
Sterling also rallied to a 13-month high versus the dollar also on expectations the UK will raise interest rates well ahead of the US. Although interest rates differentials are likely to continue to drive Forex markets and provide support to the single currency and the pound, an escalation of tensions in Libya may fuel risk aversion, which may eventually support a dollar comeback especially if the global economic recovery is put into jeopardy with the rising oil prices.
PMI’s across Europe generally positive; German Unemployment Drops
Manufacturing PMI’s across the largest Euro zone nations, and Switzerland and the UK were by and large positive on Tuesday, while German unemployment rate fell to 7.3 from 7.4 percent. Euro zone headline CPI was in line with forecasts at 2.4 percent, which is still above the ECB’s target rate. The Bank of Canada kept interest rates at 1 percent as expected.
This article has been prepared by Emman Xuereb, Senior Trader at RTFX Ltd.