Bernanke’s Hawkish Comments Boost U.S. Dollar

The U.S. Dollar rose overnight after Fed Chairman Bernanke said the central bank is ready to tighten monetary policy once the economy has “improve sufficiently.”

The U.S. Dollar rose overnight after Fed Chairman Bernanke said the central bank is ready to tighten monetary policy once the economy has “improve sufficiently.”

Bernanke also added “We will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.”

The central bank Chairman’s comments led investors to take some money off the table ahead the long week-end. The U.S. Dollar index rebounded slightly from its weekly low as the news affected currencies across the board. Bernanke’s comments are having a similar effect as a verbal intervention.

Bernanke’s comments are putting pressure on the EUR USD overnight as they increase the appeal of U.S. assets. Yesterday the European Central Bank announced it would leave interest rates at 1.0%. In addition, in its statement, the ECB implied that the economic recovery in the Euro Zone would be rocky.

The GBP USD is feeling pressure overnight following Fed Chairman Bernanke’s hawkish comments. Traders are taking profits following the recent run-up in the British Pound on the perception that Bernanke’s comments indicate that the U.K. economy may be one of the last to mount an economic recovery.

The USD JPY rallied sharply overnight as traders are interpreting Fed Chairman Bernanke’s comments as a sign the Japanese economy is still among the weakest. A recovery in the U.S. economy would drive up U.S. interest rates which would force traders to treat the Japanese Yen as a carry currency once again.

Short-traders are taking profits in the USD CHF following a week of selling pressure. Although Bernanke’s comments are not a call for action at this time, they clarify the fact that the Fed will be willing to act swiftly if economic conditions improve. This is seen as supportive for the Dollar. Traders are reacting by paring the size of their long Swiss Franc positions.

Bernanke’s hawkish statement is having a negative effect on higher risk assets including U.S. equity markets and crude oil prices. This is helping the USD CAD recover some of its weekly loss. Pressure from lower crude oil prices because of increased supply could limit gains in the Canadian Dollar during the upcoming week.

The AUD USD and NZD USD are showing signs of profit-taking overnight. Traders are making adjustments to their long positions on the heels of hawkish comments from Fed Chairman Bernanke. His comments should not have a lingering influence on the Aussie since traders are pricing in another rate hike for November. The New Zealand Dollar could feel some short-term downside pressure following comments from the Reserve Bank of New Zealand. The RBNZ expressed concerns about the rapid rise in its currency and the possible negative effect this could have on the economy’s recovery.

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