USD - The dollar is lower against nearly all of its major counterparts this morning after Fed Chairman Bernanke kept hopes of QE3 alive. While the Fed chief stopped short of providing any particulars of a third bout of asset purchases, he vehemently defended the two previous rounds, saying they drove stocks higher, improved financial market stability and created more than 2 million jobs. He went on to reiterate the central bank's willingness to inject further liquidity, but statements as such are not new. "The Fed will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability." Bernanke also reasserted the Fed's commitment to keeping borrowing rates low for years to come. However, investors are now expecting policymakers to lay out concrete targets for economic growth, inflation, and/or the unemployment rate before a rate hike would be considered. Such benchmarks could come as early as the FOMC's next meeting on September 12-13. Global financial markets are thus ending the week on a strong note as investors appear to generally believe that the Fed will step in should economic conditions worsen any further. Consequently, the dollar has pared much of its recent gains as the risk-on trade saps demand for its relative safety.
EUR - The euro reached a fresh 11-week high against the USD this morning after rather dovish commentary from Fed Chairman Bernanke. However, gains have been limited by renewed concerns over the health of the Eurozone's periphery economies. Spain is again a cause for concern as negotiations between the nation's policymakers and the EU over a €100B bank recapitalization program appear to be breaking down. Spain's international creditors are insisting that Spanish private sector debt holders must bear part of the rescue costs. If the haircut can't be passed on, then the federal government must bear the responsibility. As such, the government is now considering scrapping the plan altogether and going it alone. However, this again raises the question of whether they have enough money to bail out their troubled banks. Meanwhile, Greek lawmakers have proposed a fresh €11.7B in government spending cuts with a bulk of the savings from reduced pension payments, lower government wages, no bonuses, and a higher retirement age. While coalition party members have shown initial support for the package, public approval will be far more difficult to secure.
GBP - Sterling is stronger against both the USD and EUR this morning on the improvement in risk sentiment. The pound is also higher after a measure of British home prices gained by more than expected, rising 1.3% after last month's 0.8% contraction. On an annualized basis, the measure cut its declines from -2.6% to just -0.7%. However, the pound's gains will likely remain limited in the near term with the BoE set to meet next week.
JPY - The yen is generally higher this morning, set to end the week at the top of its recent ranges. Gains against the dollar came after Fed Chairman Bernanke's hints at QE3 prompted investors to speculate that further asset purchases would squeeze the yield gap between US and Japanese debt. The yen is also stronger against the EUR as Spain delayed aid payments to its troubled banks.
Commodity Currencies - The commodity linked currencies are generally higher this morning as the risk-on trade provides support. Raw good prices are in the black with oil rising to $96/bbl, gold gaining to $1675/oz, and copper flat at $344. The CAD is back at the top of its recent ranges after Canadian GDP rose by more than expected at +1.8%, up from +1.6%. The loonie has also found support as investors begin to price in further monetary easing in the US, the primary destination for Canadian exports. Similarly, the MXN is nearly a percent higher against the USD as further US stimulus measures would provide support for Mexican exports. The AUD has pared overnight losses as surging risk appetite encourages investors to seek the Aussie's relatively high yields. Gains will however be limited as stocks in China - Australia's primary trading partner - and the price of steel plummeted to a three-year low this week.