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Dollar slumps after Bernanke statement

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Dollar slumps after Bernanke statement

The dollar lost ground on Thursday on the heels of Wednesday Federal Reserve meeting minutes and a follow up comment and question and answer session of Chairman Ben Bernanke.  The dovishness of the Chairman came out during this period which had a profound effect on interest rates and exchange rates.  The BOJ left rates unchanged and debated a long term inflation target for the central bank.

The meeting minutes showed that several FOMC members wanted to see more employment growth before pulling back on the throttle on the bond purchase program. This news scaled back any hawkish tone and sent rates on the long end lower.

Following the minutes Bernanke’s comments in response to questions after his speech raise doubts over the consensus view among market participants, and the about when the tapering of the bond purchase program would take place.  The consensus that emerged in recent weeks was for the Fed to announce a slowing of purchases of long-term assets at the September FOMC meeting that would begin in October.  This view seems to have been dashed, allow bond prices to rise and the dollar to fall.

The FOMC was not the only bank to take the spotlight. The BOJ kept its monetary policy on hold as the Japan economy shows slight improvement.  The decision on the monetary base target was unanimous.  BOJ said the economy is starting to recover moderately and it will continue easing until inflation reaches to the target.  BOJ released updated forecasts on a number of growth and inflation target which included 2013 GDP growth seen at 2.8% vs. 2.9% in April, and 2014 growth at 1.3% vs. 1.4% in April.

The USDJPY recovered some of Wednesday’s loses but failed to recapture the 10-day moving average which is seen as resistance.  Support is the recent lows near 99.00.

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