The US dollar strengthened vs. most major currencies after Federal Reserve Chairman Ben Bernanke said that the Fed is ready to tighten monetary policy once the economy improves, which also increased the appeal of US assets. White house economic adviser Lawrence Summers also reiterated the administration's commitment to a strong dollar. This is one of the many comments to support the dollar in past week that included comments from Treasury Secretary Timothy Geithner and European Central Bank Governor Trichet. The Commerce Department reported that the US trade deficit narrowed in August to $30.7 billion from a revised $31.9 billion in July. The data came as a surprise as analysts had forecast a rise to $33.0 billion.
The euro fell against the dollar as the trade balance in Germany, Europe's largest economy, grew less than expected. The trade balance was €8.1 billion in August, less than forecast of €12.0 billion and also less than a revised €14.1 billion the previous month. Germany's consumer price index was down 0.4% in September, in line with expectations.
Sterling came off its overnight highs after hawkish comments from Fed chairman Bernanke. On the data front, the Office for National Statistics said non- seasonally adjusted output prices rose 0.5% in September, taking the annual rate of inflation to 0.4%. British exports rose at their fastest pace, rising 5% on the month to 19.187 billion pounds and imports rose by 3.5% to 25.666 billion pounds. Britain's global goods trade gap narrowed fractionally to 6.479 billion pounds, signaling signs of underlying improvement.
The Japanese yen fell sharply to a two month low against the dollar after remarks from Fed Chairman Bernanke that said that the Fed is ready to tighten monetary policy once the economy improves. Machine orders only grew 0.5% in August month-over-month, worse than forecast growth of 2.1%. This added to speculation that Japan will be among the last developed countries to recover from the economic crisis.
The Canadian dollar strengthened to a one-year high as domestic jobs data came in better than expected. Statistics Canada reported net employment gains of 30,600 in September and unemployment rate fell to 8.4% from 8.7% in August. Statistics Canada also reported Canada's trade gap growing to a new record in August. The trade gap hit a record high of C$1.99 billion after exports slid sharply both in volume and value.
The Australian and New Zealand dollars trimmed some of its impressive gains after comments from Fed chairman Ben Bernanke. The Aussie and the Kiwi also lost some steam as gold prices eased off its record high and oil prices fell towards $71 a barrel on hopes of US dollar recovery.
The Mexican peso headed for its biggest weekly jump on speculation President Felipe Calderon's proposed 2010 budget will win congressional approval. The proposed 2010 budget has tax law changes that would generate 176 billion pesos ($13.2 billion) in additional revenue while spending would be cut by 218 billion pesos. If congress approves, the country will avoid its first credit-rating downgrade since 1995.
10-Year Treasury Note Yield: 3.3709%
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