THE BLOG'S THREE MAIN OBJECTIVES:
~*Revealing and Getting Rid of Scams | Creating Honest Sustainable Wealth | Offering Happiness, Safety and Legitimacy*~

Thursday, 26 February 2009

Commentary by Kathy Lien: Dollar Rallies Despite Bernanke's Pessimistic Comments and Weak US Data

The US dollar continues to rally against the Japanese Yen (USD/JPY) despite pessimistic comments from Federal Reserve Chairman Ben Bernanke and weaker US economic data. The bleaker outlook for the US economy is sending investors flocking into the safety of US dollars. In his prepared comments, Bernanke warned that a recovery could take more than 2 to 3 years. A turnaround in 2010 is only possible if the the markets and banks stabilize. This is why Bernanke has been a big supporter of focusing relief efforts on the financial sector. He believes that there are still significant stresses in many markets and a sharp contraction in economic activity is expected in the first quarter. Therefore US interest rates will remain at an exceptionally low level for some time. His pessimistic sentiment was shared by US consumers. According to the Conference Board's report, consumer confidence hit a record low in the month of February. In addition, house prices and manufacturing activity have plunged.

Yet the dollar's rally remains unabated against the Japanese Yen despite weak economic data. It is important to realize that the state of the US economy is not driving the dollar higher. Instead it is the expectation that if the US does not recover, no one else will. Therefore if it will take 2 to 3 years for the US economy to start recovering, it may take 3 to 4 years for other countries to stabilize.

There could still be more surprises in Bernanke's testimony, which is only beginning as he will be facing questioning by the members of the Senate. Although the Q&A session could set the tone for trading this afternoon, the USD/JPY rally has been voracious. Unless there are new revelations from Bernanke, USD/JPY could be headed to 98.

No comments:

Goldman Sachs Information, Comments, Opinions and Facts