Dollar Posts Losses vs. Yen and Euro
The Greenback fell against the yen and the euro after Fed Chairman Ben Bernanke told congress that rates will remain low for and extended period. An unexpected decline in US home sales bolstered investor outlook for low Fed rates and reinforced the perception that US recovery will be a long and turbulent process. The troubled euro went as high as $1.3626 in currency markets and last traded at $1.3600, a gain of 0.7%. Bernanke’s testimony dampened speculation that rates would rise soon, a policy that would bolster the value of dollar denominated assets. In prepared testimony in front of the House Financial Services Committee Bernanke said that , “The (Federal Open Market Committee) continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Weak US Data
The weak US housing data showed that American consumers are still struggling during the ongoing recession. The data showed that sales of new homes declined in January by 11.2% a record low. Vassili Serebriakov, of Wells Fargo said, “All combined, there are not a lot of reasons to buy dollars today,” he said. “The initial reaction has been negative for the dollar but I wouldn’t be surprised if that reverses because there are even fewer reasons to buy currencies such as the he euro and the pound.”
Bernanke Says US Recovery is ‘Nascent’
Bernanke told congress that the US economy is in a “nascent” recovery and still requires low interest rates to encourage spending by consumers and businesses once the stimulus measures expire. Bernanke told the Committee, “A sustained recovery will depend on continued growth in private-sector final demand for goods and services. Private final demand does seem to be growing at a moderate pace.” Bernanke, who began his second term as Fed Chairman said that dismal labor markets and low inflation will allow the Federal Open Market Committee to keep benchmark rates low for an ‘extended period. Bernanke said the Fed will have to start to tighten monetary policy ‘at some point.’ Bernanke further stated, “The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Bernanke said that “tentative” signs of labor market stabilization such as fewer job losses, a rise in employment in the manufacturing sector pointed to recovery. About the labor market Bernanke said, “Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” He pointed out that 40% of the unemployed have been without jobs for six months are a “particular concern” for the Fed.
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