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The US Dollar ignored gains on Asian stock exchanges, rebounding against the spectrum of major currencies after Fed chairman Ben Bernanke said the Fed was ready to tighten monetary policy once the economy improves.

Key Overnight Developments

• Bernanke Says Fed is Ready to Tighten Policy as Economy Improves
• US Dollar Ignores Stock Gains, Rebounds Against Major Currencies


Critical Levels

100909

The Euro sold off in overnight trading, slipping as much as 0.6% against the US Dollar. The British Pound followed the single currency lower, testing as low as 1.60 against the greenback. Curiously, the Dollar rebounded against the spectrum of major currencies despite gains on Asian stock exchanges that would have been expected to weigh on the safety-correlated US unit.

Asia Session Highlights

Federal Reserve Chairman Ben Bernanke sent the US Dollar higher in overnight trading as the markets latched on to comments saying the central bank was ready to tighten monetary policy once the economy improves, hinting that perhaps US policymakers have shortened their time frame for keeping rates in the ultra-low 0-0.25% target range. Still, Bernanke cautioned that the Fed believes that accommodative policies will likely be warranted for an extended period. Profit-taking ahead of a three-day weekend in the US and Japan may have also led USD higher after the currency hit a fresh yearly low yesterday. The Dollar Index, an average of the greenback's value against six top currencies, gained as much as 0.5% ahead of the opening bell in Europe.


Euro Session: What to Expect

Germany's Current Account surplus is expected to contract to 8.8 billion euro in August from 11.0 billion in the previous month. A survey of economists polled by Bloomberg forecasts that the external balance will contribute on average 3.8% to the economy's overall output this and next year, the smallest since 2003. Meanwhile, the current account deficits of Germany's main non-Eurozone trading partners in the US and the UK are on track to narrow over the same period, hinting at downward pressure on EURGBP and EURUSD in the long-term outlook as international trade patterns gradually adjust. Indeed, the UK Visible Trade Balance deficit is set to narrow to -6.3 billion pounds in August, the smallest in over two years.

Separately, UK Producer Prices are set to shrink at an annual pace of -0.1% in September, putting in the fourth consecutive month in negative territory. The outcome foreshadows continued downward pressure on consumer prices (the benchmark inflation gauge) as falling wholesale costs translate into a lower final price tag. This may give the Bank of England scope to expand its asset-purchasing scheme and possibly lower the interest rate it pays on banks' reserve deposits amid concerns that rising unemployment will continue to weigh on wages, keeping inflation below the 2% target level for longer than two years. The BOE opted to hold off on policy changes this month but many observers (including former MPC policymaker David Blanchflower) suggest a dovish shift will coincide with the release of the bank's updated inflation forecast next month.


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