Bernanke Holds The Key To USD Strength

To The Strength Of The USD

Global markets traded steadily yesterday, building up to the publishing of the Federal Reserve’s minutes from the last BOD meeting in April/May, and Ben Bernanke’s statement to Congress later today. After a small correction on Tuesday, the USD continued to strengthen and is up close to a record high against a basket of currencies, DXY.

As the last few weeks have shown, the overall trend in the USD is pointing up towards all currency pairs in spite of a day or two of declines. This trend is supported by three main factors; the forecast for the U.S. is better than for any other economy, Europe is ridden with recession and Japan is concentrating its efforts on increasing the inflation to the 2 % target.

The upswing in the U.S. economy is mainly due to its monetary easing and the FED's loose monetary policies. FED representatives have over the last few days, indicated that the bond buying program will soon come to an end. If Bernanke “sneezes” today and states the same as his local FED representatives have, it would mean a further strengthening of the USD.

A weaker euro and yen over the last few hours seem to indicate that this is what markets expect. After the Japanese Minister of Economy talked the yen up earlier in the week, it appears he may have been reprimanded by superiors, and the yen kept on freefalling. The International Monetary Fund, IMF, is due today to urge Swiss authorities to weaken the Franc by unwinding its currency reserve funds. The Franc has already depreciated 3,7 % towards the euro in 2013.

Precious metals continue to fluctuate wildly, searching for direction. The large increases in gold and silver throughout Asia and early European trade was quickly eaten by new steep falls. Oil prices keep steady. A smaller than expected English inflation strengthened the GBP and gave the markets hopes for looser monetary policies, meaning more money printed by the Bank of England.