Investors cut bullish bets on US Dollar as Bernanke shifts focus
The US dollar spent the better part of three weeks hitting multiyear highs against its peers amid growing expectations that the Fed will begin tapering its $85 billion monthly asset purchase program. This week, however, the outlook on the greenback went from speculative to downright grim, as the market reacted to dovish comments from Fed Chairman Ben Bernanke. In his latest appeal to the markets, Bernanke eased expectations that the Fed would begin tapering its bond buying program, suggesting instead that loose monetary policy would continue, forcing investors to cut their bullish bets on the US dollar.
The US dollar index took a nosedive Thursday, declining 1.6 percent to close the North American session at 82.75. The greenback was demonstrably weaker against all major peers, as investors eased expectations for a shift in monetary policy. The economic calendar also failed to accommodate the slumping greenback, as consecutive reports failed to meet market expectations. Initial jobless claims (July 6) were 360K compared to expectations of 340K. Continuing jobless claims (July 29) reached 2.977M compared to expectations of 2.950M. Import and export price indices also came in shy of the consensus.
The USDJPY extended its losses all the way to the North American session, closing at 98.8700 (-0.81 percent). The yen was supported on Thursday amid BoJ optimism that the Japanese economy was responding positively to the stimulus plan, extinguishing concerns that further easing would be required.
The USDCAD sunk to three-week lows, as stronger commodity prices helped the loonie extend its gains to a fourth consecutive day. The pair closed the North American session at 1.0383 (-0.73 percent). The Canadian dollar has also received support from strong housing figures; new housing starts in the year ended in June reached 199.6K, beating expectations of 187.0K.
The EURUSD was up almost one percent following Bernanke’s dovish remarks, closing the North American session at 1.3105. The advance had almost nothing to do with developments in the Eurozone, which continues to be hampered by weak growth. The Eurozone’s declining economic outlook has prompted ECB President Mario Draghi to consider further interest rate cuts this year.
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