An opinion piece by Federal Reserve Chairman Bernanke helped put pressure on the GBP USD early in the New York trading session.
The article in the Wall Street Journal highlighted Mr. Bernanke's opinion that the Fed was confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate. Bernanke went on to say in the article that the Fed will maintain accommodative policies for an extended period of time.
These comments are helped encourage selling of the British Pound as they suggest that the Fed has a plan to systematically withdraw from its current expansionary policy without upsetting the market while maintaining control over future inflationary pressures.
Today Mr. Bernanke had an opportunity to expound on his opinion as he began a two-day testimony in Washington in front of the Senate Financial Services Committee. Throughout the day, investors curtailed their demand for higher-risk assets like the British Pound while waiting for direction from the Fed Chairman. I
Although all of the major Forex markets remain inside their June to July ranges, today's action indicates that there is still strong demand for higher risk assets.
Today's market opened as if the U.S. Dollar would strengthen all day. Buoyed by an opinion article by Fed Chairman Bernanke in today's Wall Street Journal, the U.S. Dollar opened higher. It remained firm throughout the day during the testimony of Bernanke before the Financial Services committee.
Once today's testimony concluded and traders assessed the damage if any, the Dollar weakened substantially into the close as traders once again sought higher-risk, higher-yielding assets. The strong surge in the equity markets helped erase almost all of the Dollar's gains against every major currency with the exception of the Japanese Yen.
The best recoveries were in the Australian and New Zealand Dollar markets were early losses were erased as traders covered shorts and went long in an effort to capture the higher yields offered by these two currencies.
Short-covering also boosted the EUR USD into the close and put this pair in a position to rally further with the high for the year at 1.4337, the next potential upside target.
Firm crude oil and the late session rally in U.S. equities kept downside pressure on the USD CAD. The Bank of Canada left interest rates alone and failed to issue a strong statement regarding the current level of the currency. Many traders were looking for the BoC to make a stronger comment regarding the current price level of the Canadian Dollar and its effect on exports.
Traders have to assume that these major Forex markets will remain inside their ranges with the exception of the Australian Dollar and New Zealand Dollar, which are being driven by the awesome strength in U.S. equity markets.
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