The near-term dollar moves will still tend to be linked strongly with risk appetite. The paradox of dollar gains on bad news is liable to continue for now as fears over the global economy intensify
The US economic data continued to offer very little relief with the consumer confidence data particularly striking as there was a further decline to 25 in February from a revised 37.4 the previous month. This pushed confidence down to a fresh record low as fears over the banking sector and economy persisted. The Case-Shiller index house-price index fell 18.5% in the year to November, although a separate survey reported 0.1% rise in prices for December.
In testimony to the Senate Banking Committee, Fed Chairman Bernanke warned that the recession could be extended into 2010 if there was no stabilisation in the financial sector. He also warned over the risk of a vicious circle as a weakened demand led to further stresses within the financial sector and banking-sector policies will remain an important focus.
The dollar gained initial defensive support following the comments, but then weakened back to above the 1.28 level as Wall Street attempted to rally from long-term support levels and was little changed in early Europe on Wednesday.