The dollar surged after U.S. Federal Reserve Chairman Ben Bernanke said policymakers may raise the discount rate before long, boosting expectations the U.S. central bank would start tightening monetary policy earlier than its major counterparts.
Despite Tuesday's rally to 1.3840 on hopes of a potential EU support package for Greece, euro retreated against the greenback to 1.3734 on profit-taking in Asia. The single currency then rebounded to intra-day high at 1.3813 in European mid-day after Bloomberg reported that an official, who attended a briefing on Wednesday at the Parliament in Berlin, said German Finance Minister Wolfgang Schaeuble told lawmakers that options for helping Greece extended beyond loan guarantees and the aids were more flexible than the government originally thought. However, the pair retreated again and reached intra-day low of 1.3676 in NY mid-day as Fed Chairman Ben Bernanke said the Federal Reserve could begin pulling back its unprecedented stimulus for the U.S. economy by first removing some cash from the financial system and then raising interest rates, before staging a rebound on active cross-inspired buying in euro (eur/jpy rose from intra-day low of 122.69 to 123.88 in NY afternoon).
Cable fell in tandem with euro's move in Asia. However, the pair then rebounded in Europe as U.K. industrial production and manufacturing for December came in better-than-expected at 0.5% m/m, -3.6% y/y and 0.9% m/m, -1.9% y/y respectively. Although Sterling picked up more upward momentum and rose to intra-day high at 1.5766 after report from Bloomberg regarding the Greek rescue plan, the British pound retreated after the BOE's inflation report and nose-dived after comments from BOE's King who said sharp fall in sterling is still feeding through to consumer prices. Cable further tumbled to 1.5572 on Bernanke's testimony in NY mid-day.
Although the dollar rose to 90.02 against the Japanese yen in Asian morning, subsequent active cross-buying in the yen pressured the pair to as low as 89.25 in U.S. morning (gbp/jpy declined from high at 141.43 to 139.46). However, the greenback reversed the early weakness and returned to intra-day high of 90.07 on Bernanke's comment.
Economic data to be released on Thursday include Australia employment change, Germany WPI, Swiss CPI, U.S. jobless claims, retail sales, business inventories and Canada new housing price index.