If officials do not like foreign exchange volatility, Fed Chairman Bernanke may not be pleased with the market response. The mention of the dollar, which traditionally is a topic the Fed defers to the Treasury Dept, prompted interbank and option dealers to cover short dollar positions, even though no new ground was covered or specifics cited. However cooler heads quickly prevailed and the dollar returned to pre-Bernanke levels. It is clear from the Chairman's remarks that the dollar's decline is not of sufficient proportions to prompt a change in the US monetary policy. Bernanke continues to envision that the economic conditions are such that will allow rates to remain low for an extended period. Like other officials we have spoken with, Bernanke frames the recent dollar decline in the context of the dollar's rally in H2 08 and Q1 09.
The intraday volatility not withstanding, Bernanke's comments do not present a significant obstacle to dollar bears. Sterling is made new highs for the session post Bernanke's prepared remarks. The dollar looks poised to challenge the session low against the Japanese yen.
Meanwhile, the equity market and debt market continues to rally.
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Reviewed by magonomics
on
November 16, 2009
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