Dollar tanks on dovish comments from Fed's Bernanke before rebound
The greenback tumbled against other currencies in Australia on Thursday as Federal Reserve Chairman Ben Bernanke said the central bank will not be an automatic increase in interest rates when U.S. jobless rate hits 6.5%. However, dollar rebounded strongly against euro on short-covering.
Although the single currency rallied to a high at 1.3208 in Australia due to the dovish comments from Fed's Bernanke, price retreated sharply to 1.3069 in Asia on profit-taking before staging a recovery to 1.3147. Renewed selling interest pressured the pair to 1.3021 in European morning and then 1.3006 in New York morning before stabilising.
Fed's Bernanke said 'will not be an automatic increase in interest rates when U.S. jobless rate hits 6.5%, rate increase might be some time after; current unemployment rate of 7.6% if anything overstates health of U.S. labour market; inflation is low, U.S. fiscal policy is quite restrictive, highly accommodative monetary policy needed for forseeable future; Fed somewhat optimistic on outlook for U.S. economy.'
Despite USD/JPY selloff to 98.26 in Australia on dollar's broad-based weakness due to Bernanke's comments, the pair staged a recovery to 99.63 in Asia before falling to 98.27 on active cross buying of yen versus euro. However, failure to penetrate said level prompted short-covering and price rebounded to 99.50 in European morning but then dropped to 98.58 in New York morning and then rebounded again to 99.35 in U.S. afternoon.
Although the British pound rallied to a high at 1.5193 in Australia on dollar's broad-based weakness due to the dovish comments from Fed's Bernanke, price retreated to 1.5080 in Asian morning on profit-taking. Later, despite brief recovery to 1.5173, the pair dropped in tandem with euro to 1.5062 in European morning but then rebounded to 1.5145 on cross buying of sterling and price later ratcheted higher to 1.5160 in U.S. afternoon.
In other news, BOJ governor Kuroda said 'Japan long-term rates very stable; Japan economy, prices moving roughly in line with April forecast; recovery in sentiment leading to increased spending; a few members maintained their cautious view on price outlook they made in April; overseas economies somewhat weaker, domestic demand somewhat stronger than expected; financial markets are nervous about Fed tapering but understanding of Fed policy is spending; Japan government policies show it is talking fiscal discipline seriously.' ECB monthly bulletin stated 'ECB forward guidance has been provided before exhausting scope for further interest rate cuts; key interest rates can be reduced further if warranted by price stability outlook.' U.K. Finance Minister Osborne said 'economic recovery dependent on stimulus from central bank; better information about path of BOE rates would help UK households.'
On the data front, U.S. initial jobless claim was reported at 360K, worse than the expectation of 340K. Australian unemployment rate came in at 5.7% versus the forecast of 5.6%.
Data to be released on Friday:
Australia home loans, Japan industrial production, capacity utilization, Italy CPI, HICP, EU industrial production, U.S. PPI, PPI core, University of Michigan consumer confidence.