The US dollar was volatile today as Forex market participants were trying to interpret the words of Federal Reserve Chairman Ben Bernanke and to guess whether the central bank will remove stimulus.
Bernanke was testifying to the Congress today. At first, he warned about the danger of premature end to quantitative easing:
Premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.
The dollar dropped on speculations that such comments mean continuation of accommodative measures, yet later the currency rallied as the Chairman hinted that the asset-purchase program may be indeed scaled down.
The minutes of last Fed’s policy meeting were released today, showing that policy makers were divided about timing and conditions of quantitative easing end:
Most observed that the outlook for the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate. A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome.
EUR/USD advanced from 1.2905 to 1.2997, but the rally failed and the currency pair dropped to 1.2858 as of 20:13 GMT today. GBP/USD slumped from 1.5152 to 1.5051 and its low of 1.5017 was lowest since March 14. USD/JPY went up from 102.45 to 103.72 (the highest since October 2008) before trading at 102.84
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