Dollar Firms Following Comments by Bernanke

An opinion piece by Federal Reserve Chairman Bernanke is helping to put pressure on the GBP USD overnight. This is leading traders to call for a lower opening in New York

An opinion piece by Federal Reserve Chairman Bernanke is helping to put pressure on the GBP USD overnight. This is leading traders to call for a lower opening in New York

The article in the Wall Street Journal highlighted Mr. Bernanke’s opinion that the Fed was “confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate.” Bernanke went on to say in the article that the Fed will maintain ‘accommodative policies” for an “extended period” of time.

These comments are helping to encourage selling of the GBP USD as they suggest the Fed has a plan to systematically withdraw from its current expansionary policy without upsetting the market while maintaining control over future inflationary pressures.

Bernanke’s comments are helping to drive the Dollar higher overnight. The thought that the Fed is even considering an exit strategy is a good sign that the economy may be bottoming and in a position to recover. This is leading traders to favor the U.S. Dollar over economies such as the U.K. and the Euro Zone which may still be going through tough economic times.

Bernanke’s opinion that the Fed has the tools to control inflation may lead to selling pressure on the Canadian Dollar which relies on higher prices in key commodities such as crude oil and copper to drive the economy.

Forex traders are cutting short positions against the Dollar on the thought that a rate hike by the Fed in the future will give the U.S. an interest rate advantage against those currencies still maintaining rates near 0%. This includes the Canadian Dollar and Swiss Franc.

The Australian Dollar and New Zealand Dollar may also feel pressure today because a shift in policy by the Fed will most likely curtail the huge amount of liquidity that has been flowing to these two higher-yielding currencies.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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