US Session – Dollar stabilizes and cuts some losses
July 12, 2013 9:14 pm
The market focus was on the dollar again but this time it was to buy it back after a huge sell-off two days ago when comments from Federal Reserve chief Ben Bernanke spooked investors that the central bank’s quantitative easing (QE) program will continue for longer than expected.
QE involves $85 billion worth of bond buying a month and this program is largely seen as negative for the dollar as it is basically printing more money and pumping it into the financial system.
However, the Fed is the only major central bank in the world that is expected to exit this type of loose monetary policy much sooner than other central banks in the euro zone, Japan and U.K. since the U.S. economy is on a much firmer recovery path that the rest. The European Central Bank, the Bank of England and the Bank of Japan are all looking to ease monetary policy further.
Therefore, the shock effect of a dovish Bernanke has largely been digested by markets already today and demand for the dollar is back. There more likely to be in a positive dollar direction than the reverse, especially if U.S. economic data improves.
Giving investors confidence today was Philadelphia Fed President Charles Plosser said the Fed should start slowing monthly asset purchases before the end of the year.
Also today, data showed U.S. producer prices rose more than expected in June, pointing to an apparent increase in inflationary pressures that could make the U.S. Federal Reserve more comfortable about reducing its monetary stimulus. Market ignored the lower-than-expected University of Michigan consumer sentiment data.
The dollar appreciated 0.2 percent to $1.3065 per euro by the end of the US session. Yesterday the EURUSD hit $1.3205, the weakest level since June 21. USDJPY was up 0.5 percent, steadying around 99.40, after a choppy session following some mixed U.S. economic data. GBPUSD ended at $1.5104. AUDUSD was the worst performer, down over 1 percent to end the session at $0.9046.
The market focus was on the dollar again but this time it was to buy it back after a huge sell-off two days ago when comments from Federal Reserve chief Ben Bernanke spooked investors that the central bank’s quantitative easing (QE) program will continue for longer than expected.
QE involves $85 billion worth of bond buying a month and this program is largely seen as negative for the dollar as it is basically printing more money and pumping it into the financial system.
However, the Fed is the only major central bank in the world that is expected to exit this type of loose monetary policy much sooner than other central banks in the euro zone, Japan and U.K. since the U.S. economy is on a much firmer recovery path that the rest. The European Central Bank, the Bank of England and the Bank of Japan are all looking to ease monetary policy further.
Therefore, the shock effect of a dovish Bernanke has largely been digested by markets already today and demand for the dollar is back. There more likely to be in a positive dollar direction than the reverse, especially if U.S. economic data improves.
Giving investors confidence today was Philadelphia Fed President Charles Plosser said the Fed should start slowing monthly asset purchases before the end of the year.
Also today, data showed U.S. producer prices rose more than expected in June, pointing to an apparent increase in inflationary pressures that could make the U.S. Federal Reserve more comfortable about reducing its monetary stimulus.
Market ignored the lower-than-expected University of Michigan consumer sentiment data.
The dollar appreciated 0.2 percent to $1.3065 per euro by the end of the US session. Yesterday the EURUSD hit $1.3205, the weakest level since June 21.
USDJPY was up 0.5 percent, steadying around 99.40, after a choppy session following some mixed U.S. economic data. GBPUSD ended at $1.5104. AUDUSD was the worst performer, down over 1 percent to end the session at $0.9046.
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