Dollar slips ahead of Bernanke speech in Wyoming

By Nick Olivari

NEW YORK (BestGrowthStock) – The dollar slipped against both the euro and the yen on Thursday as investors braced for a speech from Federal Chairman Ben Bernanke speech on Friday.

The annual Federal Reserve conference in Jackson Hole, Wyoming, where Bernanke will give his thoughts on the U.S. economy, has investors cautious given the uncertainty surrounding the U.S. economic recovery.

Any statement from Bernanke on continuing or increasing economic stimulus measures could dent the dollar given that European authorities are perceived as more given to austerity than the U.S.

“A second round of quantitative easing will likely put sharp downward pressure on the dollar, to some degree versus the euro and other G10 currencies, with potential for a broader dollar sell-off,” said Steven Englander, Citigroup’s global head of G10 currency strategy.

“Foreign investors are likely to view the renewed direct intervention as indicating that the Fed’s balance sheet expansion and implicit monetization of fiscal expenditures are first line approaches to dealing with disappointing recovery prospects.”

Rising concerns over the deepening economic slowdown pushed the yen and Swiss franc to multiyear highs this week due to their perceived safe-haven status.

In late afternoon trading in New York, the dollar fell 0.2 percent to 84.44 yen, while the euro rose 0.5 percent to $1.2716. The yen rose to a 15-year high against the dollar on Tuesday.

The euro touched an all-time low versus the Swiss franc on Wednesday but recovered and was off that trough despite a 0.1 percent decline to 1.3027 francs on Thursday. The single currency rebounded against the yen to trade 0.3 percent higher at 107.38 yen after hitting a nine-year low on Tuesday.

The euro/dollar earlier on Thursday broke above the 55-day and 100-day simple moving averages. A close above these levels would add to upward momentum.


But analysts said apparently better sentiment on the euro was unlikely to be sustained.

“While the euro may enjoy additional near-terms gains, its upside should prove very limited, especially in an environment where investors are growing increasingly nervous about the global economic outlook,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

And the dollar did get some support after a government report showed new U.S. claims for unemployment benefits fell more that expected last week.

Still, analysts such as Alan Ruskin, global head of G10 FX strategy at Deutsche Bank AG, said early that moves would be limited before Bernanke’s speech.

“For the currency market, the immediate response has been risk positive, best expressed through dollar/yen,” Ruskin said after the data. But “given proximity to the Bernanke speech tomorrow, I suspect there will be a lack of follow-through all round to the data.”


Analysts said the market was also still cautious about possible Japanese intervention, with many investors on the sidelines.

Demand for the yen cooled amid speculation Bank of Japan Governor Masaaki Shirakawa might address the currency’s strength at the Wyoming retreat.

Speculation has grown in recent weeks that Japan may intervene to stem the yen’s rise for the first time since March 2004. The yen hit an all-time high of 79.75 to the dollar in April, 1995.

Japan has not been immune to the deep global recession, and a strong yen will dampen demand for Japanese exports, offsetting other measures to stimulate the economy.

Suzuki Motor (7269.T: ), for example, loses 700 million yen ($8.3 million) from its annual operating profit for every one-yen fall in the dollar.

But news that Shirakawa would attend the Jackson Hole conference made some players hesitant to push the yen higher.

(Reporting by Nick Olivari and Vivianne Rodrigues)

Dollar slips ahead of Bernanke speech in Wyoming