Dollar weakness unabated after Bernanke speech

Dollar weakness unabated after Bernanke speech
By Peter Garnham
Copyright The Financial Times Limited 2006
Published: November 29 2006 12:09 | Last updated: November 29 2006 15:43


The dollar fell to a fresh 20-month low against the euro on Wednesday after comments from Ben Bernanke, chairman of the US Federal Reserve, failed to rally support for the US currency.

Speaking in New York, Mr Bernanke struck a hawkish tone, saying that US inflation remained “uncomfortably high”.

However, the markets sent the dollar down to $1.3218 against the euro, its weakest level since March 2005.

Adrian Schmidt, senior forex strategist at Royal Bank of Scotland, said the markets had effectively ignored warnings from Fed officials and continued to price in US interest rate cuts in 2007.

“Yield spreads spreads have actually moved against the dollar in the last couple of days, in spite of the dollar’s weakness,” he said. “As long as this is the case, there can be no expectation of a dollar recovery.”

However, the dollar reversed its losses later in the session after an unexpectedly large upward revision to US growth.

Official data showed that US gross domestic product grew at an annual rate of 2.2 per cent in third quarter, more than the 1.6 per cent first estimated.

The news sent the

the dollar 0.4 per cent higher against the euro to $1.3140 and 0.2 per cent against the yen to Y116.25.

Meanwhile the euro posted a fresh all-time high of Y153.45 against the yen amid an increasing perception that european policymakers seemed unconcerned about the potential for the single currency’s strength to dent exports.

However, the yen was boosted later in the session after Japanese industrial productions data came in well above expectations, heightening expectations that the Bank of Japan might raise interest rates as early as December.

The yen duly pared back its losses against the euro to stand up 0.2 per cent on the session at Y152.95.

Elsewhere, sterling hit a two-year peak against the dollar and came within touching distance of its strongest level for 14 years on Wednesday, as traders continued to put pressure on the beleaguered US currency.

The pound traded as high as $1.9545 against the dollar in early trade. A break higher than $1.9548 would send the pound to its highest level against the greenback since its ejection from the European Exchange Rate Mechanism in September 1992.

Traders said that the current volatility on the foreign exchange markets had seen fundamental factors take a back seat as short-term investors made a series of assaults on key technical levels in sterling/dollar.

However, sterling later pulled back to $1.9490 against the greenback, down 0.2 per cent on the session.