Dollar Falls and Bernanke Discusses Financials
Bernanke
In the Congressional Joint Economic Committee meeting held on Wednesday, Federal Reserve Chairmen Ben Bernanke told members that it was still vitally important for the United States to have an easy monetary policy going forward to help support and bolster the US economy’s growth and recovery. In his statement, he said that in order for the country to have a moderate US rebound, it is necessary for the Fed to keep interest rates at near zero levels for an extended period of time.
US Dollar
In trading on Wednesday, the US dollar fell against the euro after the Fed’s remarks. Mr. Bernanke had a cautious tone in discussing the economic condition of the United States. Because of the statements he made, it is likely that the US dollar will look less favorable to investors. As interest rates remain low, the appeal of assets from the US also falls. That is likely to lead to less demand for US dollars. The cautious stance of the Federal Reserve chairman played a role in the fall of the dollar during trading.
Euro
As the US dollar fell, the euro climbed cautiously. By late afternoon trading, the euro was up by 0.4 percent to $1.3656. It reached as high as $1.3678 during trading. The euro’s movement was a directly result of the dollar’s movement.
In addition, the US dollar fell below parity with the Canadian dollar during trading. It hit a near two year low of $ 0.9953 during trading. It was down 0.2 percent for the day’s movements to C $0.9990.
The Australian dollar rose against the US dollar during trading as well. The Australian dollar moved up 0.7 percent in the day’s trading to US $0.9349. It finally broke through the barrier of US $0.9300. However, it failed to actual beat the five month peak that was hit just below US $0.9400.
Against the yen, the US dollar was only slightly changed. It moved from 92.83 to 93.18 during trading on Wednesday.
The euro moved up 0.3 percent against the yen in trading, moving to 127.27 yen. That is up over its 100 day moving average that stands at around 127 yen. There was some resistance as the yen moved closer to previous highs of 128 yen.
China Currency Concerns
Also plaguing the currency markets is China. The country saw a very unusual trade deficit for the month of March, data out from the government said on Saturday. Although it is likely that the country will continue to rebound from this in the coming months, the Chinese government is likely to use this data as a reasoning for not adjusting its currency value, something that the United States and other countries believe should be done. Nevertheless, with growing pressure to do so, it may become necessary for the Chinese government to begin adjusting its currency.
China Will Hold On
There is a lot of fear mongering going on about China’s economic power and its hold on the U.S. because it owns almost a trillion U.S. dollars of debt. But if China stops buying U.S. Treasuries and begins to sell dollars, the first thing that will happen is the Chinese currency will appreciate in value paired with the U.S. dollar. That is exactly what China does not want to happen and is accepting a lot of criticism from global nations because it insists on manipulating its currency. If the renminbi appreciates, the Chinese products will be less competitive. Of course, China can be unpredictable too and that is what I think worries people more than anything. China likes to flex its muscles every now and then and let everyone know that it is a growing economic power. One thing is clear though – the world economic dynamics are changing and the U.S. does not have the same influence it once had as global resentment over its arrogance grows.