Dollar rebounded from a six-week low against the euro on Tuesday after Federal Reserve Chairman Ben Bernanke gave a cautious assessment on the U.S. economy, renewing demand for safe-haven investments. Bernanke said that the outlook for the long-suffering U.S. economy appears to be improving and the U.S. central bank was carefully reviewing ways to withdraw its massive monetary policy stimulus when conditions permit, however, Bernanke warned that unemployment was likely to remain high into 2011 and he warned this could sap fragile consumer confidence and potentially undermine what is expected to be a very gradual recovery. In addition, he expressed concerns over the U.S. budget deficit.
Euro rose to as high of 1.4278 against the dollar in New York morning session as risk appetite continued to improve after Caterpillar Inc., a heavy equipment market, posted a second-quarter profit and gave an upbeat earnings outlook for 2009. However, the single currency then fell sharply to an intra-day low of 1.4164 as Bernanke's comments revived the greenback's safe-haven appeal before price rebounded in late trading. DJI ended up 67.79 points or 0.77%, Nasdaq gained 6.91 points or 0.36% and S&P added 3.45 points or 0.36%.
The British pound fell against the dollar after hitting a three-week high at 1.6560 on Monday as the U.K. budget deficit climbed in June to the widest since records began in 1993. The public sector posted a net cash requirement of 19 billion pounds in June, slightly lower than economists’ forecasts of 20 billion. The data fueled concerns that the government will struggle to find buyers for its assets. Investors worried that a twin deficit (budget and current account) situation will happen in the U.K. eventually. Sterling hit an intra-day low of 1.6383 versus the greenback after rebounding in New York morning, however, the pound declined again after Bernanke’s comments before recovering some of its intra-day losses as DJI turned into positive territory and dampened dollar’s safe-haven appeal.
The Bank of Canada left its benchmark interest rate at a record low of 0.25% as widely expected and said a stronger Canadian dollar is moderating the economic recovery. At the last rate decision on June 4, policymakers said the stronger currency could 'fully offset' signs of a recovery.
Data to be released on Wednesday include eurozone industrial orders, Canada retail sales and U.S. house price index.