The U.S. Dollar finished lower against all major currencies today. The down move was triggered by comments from high ranking individuals including Fed Chairman Bernanke and a Chinese banking official.
Federal Reserve Chairman Bernanke said late Monday morning that the Fed is likely to keep interest rates exceptionally low for “an extended period.” These three words helped push the Dollar to a new low for the trading session. He also stated that he is aware of the value of the Dollar, but indicated it would not be an issue unless it interfered with the Fed’s mandate to shore up employment and maintain price stability. By not offering any support for the Dollar, he indicated that it was all right to continue lower. Bernanke’s comments surprised some traders because the position of the Dollar is the concern of the Treasury and not the Fed.
Overnight comments from an Asian-Pacific nations’ conference also helped drive the Dollar lower. Earlier the group pledged to maintain stimulus until there were signs of “durable growth.” This served as a sign that liquidity in the global markets will continue until strong economic trends can develop. Excess liquidity reduces the Dollar’s allure as a safe haven currency and increases demand for higher yielding assets.
In other news, the chairman of the China Banking Regulatory Commission said, “The continuous depreciation in the Dollar, and the U.S. government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive Dollar arbitrage speculation.”
He also added that the U.S. interest rate policy has “seriously affected global asset prices, fueled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.”
All of these comments added up to a bad day for the Dollar as global investors continued to treat the low yielding greenback as a funding currency.
The EUR USD posted a gain in less than volatile trading. Investors have been cautious each time this market has tried to overtake $1.50 on a closing basis. Traders fear a stern warning from the European Central Bank or more aggressive action should the Euro rise too much, too fast.
Investors have ignored the Bank of England’s call for a weaker currency and instead have chosen to trade from the long side. Trader expectations of a better economy and lower U.S. interest rates are driving the British Pound higher.
A sign that the Japanese economy may be growing helped drive the USD JPY lower. Today’s Japanese Third Quarter GDP Report showed that the economy had its best performance in more than two years.
Greater demand for commodities and higher yields helped boost the AUD USD, NZD USD and USD CAD. The move in the Aussie Dollar was steady and without much speculation now that the Reserve Bank of Australia has taken another rate hike off the table in the short-run. Canadian Dollar traders have to be careful about rallying too high, too fast as the Bank of Canada is still concerned about the value of its currency and its possible negative effect on the Canadian economy.
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