Daily Report: Dollar Rallied Against Peers On Bernanke's Comments

The U.S. Dollar rallied against the majority of its peers after the Federal Reserve Chairman, Ben Bernanke, testified before Congress. Mr. Bernanke stated that the central bank may scale back on the monthly asset purchases provided policy makers are confident the economy has made a solid recovery. He added that tightening policy too soon could cause the interest rates to climb and recovery to slow down. The greenback weakened earlier in the day when the Fed Chairman told lawmakers that spending cuts and high levels of unemployment are still dampening the nation’s economy.

On the data front, Sales of Existing Homes rose to the highest in over three years despite the fact that the market was constrained by a dip in inventory as well as very strict credit rules. According to the National Association of Realtors, sales of Existing Houses climbed 0.6 percent to an annual rate of 4.97 million. Sales of Newly Built Homes are expected to show an advance to a 425,000 annualized rate when data is issued today However, the hike in home price was said to be unhealthy as incomes only rose less than 2 percent. Meanwhile, gold prices fell, erasing earnings from the previous day after the Fed Chairman Bernanke indicated that the bank could start to cut the pace of the asset purchases in the next few months if policy makers are confident the economy has expanded. Gold Futures for June delivery slumped 0.7 percent and settled at $1,367.40 a troy ounce on the Comex Division of the New York Mercantile Exchange.

Price action in the Euro region was mostly the result of the release of the Bank of England’s Monetary Policy meeting minutes and the announcement of Retail Sales in the U.K. A weak British Pound prompted market investors to opt for the Euro, a factor that helped support its value despite the decline in risk appetite. The shared currency remained under pressure as the Chairman of the U.S. Federal Reserve indicated that a cut in stimulus may be possible in the months to come. The British Pound traded at one-month lows against the Euro after government releases confirmed that Retail Sales fell in April; and it traded at the lowest rate versus the greenback in over two months after the Bank of England issued the minutes from its recent monetary policy meeting, which showed that the bank’s governor, Mervyn King, was defeated for a fourth consecutive month as he proposed expanding quantitative easing.

The Yen declined versus the U.S. Dollar and the Euro as the Bank of Japan announced a plan to double its monetary base in the next couple of years. The Bank’s governor, Haruhiko Kuroda, told Tokyo reporters that it will increase its money supply by 60 trillion Yen ($582 billion USD) as discussed in April. The Japanese currency remained under pressure as data showed that the Trade Deficit expanded more than anticipated last month.

Lastly, in the South Pacific, the Australian and New Zealand Dollars dipped lower against their U.S. counterpart as markets were concerned ahead of the testimony to be delivered by Fed Chairman Bernanke. The Aussie was also weighed down by lackluster Consumer Sentiment reports.

EUR/USD- Euro Reverses Gains
The shared currency reversed previous gains versus the U.S. Dollar and declined as Fed Chairman Bernanke gave his testimony on the outlook for the economy. Mr. Bernanke suggested that the central bank will leave the current asset purchasing program unchanged but may consider tightening policy if there are ample signs the economy has sustained solid improvement. The Fed Chairman added that “premature tightening” could prompt the economy to slow down. In The Euro region, the shared currency rose slightly as demand for the British Pound dropped following the release of lackluster data out of the U.K. and as investors opted for Euro assets instead.
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GBP/USD- Retail Sales Surprise Markets
The British Pound dropped to the lowest price in over two months against the U.S. Dollar as the Bank of England released the Monetary Policy meeting minutes, which indicated that six of the policy makers voted against the bank’s governor, Mervyn King, to increase stimulus. The Sterling dropped further after the Federal Reserve’s Chairman, Ben S. Bernanke indicated that the central bank may scale back its asset purchases in the months to come. Demand for the British currency remained low as government reports showed that Retail Sales including sales of fuel slipped 1.3 percent since March. Meanwhile, the International Monetary Fund praised the U.K.’s government for being fiscally flexible, and suggested that officials should consider indicating whether they’ll leave the benchmark interest rate low.
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USD/JPY- BOJ Will Double Money Supply
The Yen fell against the U.S. Dollar and the majority of its peers after the country’s central bank affirmed it will conduct its asset purchases in a flexible way. The bank also indicated it will increase the money supply to 70 trillion Yen per year as pledged last month. Japan’s currency remained under pressure after government releases revealed that the Trade Deficit expanded more than economists expected, to 879.9 billion Yen, the most in three months.
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AUD/USD-Consumer Confidence Dips
The Australian Dollar declined against the greenback in anticipation of testimony by the Federal Reserve’s Chairman, and as less than stellar data disappointed investors. According to the Westpac Banking Corporation, Consumer Confidence dipped 7.0 percent this month, after it posted a 5.10 percent drop the prior month.
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Today’s Outlook

Today’s economic calendar shows that the Bank of Japan will release its monthly report. The Euro region will issue data on Services PMI. The U.K. will report on GDP, Business Investment and the Index of Services. The U.S. will announce Initial and Continuing Jobless Claims, New Home Sales and the House Price Index. New Zealand will publish the Trade Balance. The calendar also reveals that the President of the ECB and the Governor or the Bank of Japan will deliver speeches.