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Bernanke's Warning On Inflation Boosted Dollar

Tue, Jun 3 2008, 21:12 GMT
by Yan Xu

Forexnews.com

6/3/2008 02:00 pm: EUR/$..1.5461 $/JPY..104.97 GBP/$..1.9633 $/CHF..1.0398 AUD/$..0.9533 $/CAD..1.0074

Bernanke’s Warning On Inflation Boosted Dollar

The dollar rallied across the board after Fed Chairman Ben Bernanke unexpectedly warned of inflation risk via satellite before International Monetary Conference Central Banker’s Panel in Spain. He said the central bank is “attentive to the implications of changes in the value of dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate”. This is the first time Bernanke highlighted the impact of dollar weakness on rising inflation, indicating that the central bank is not going to cut rates again. The dollar gained around 1% to 105.54 versus the yen. The euro slipped almost 200 pips from 1.56 to as low as 1.5412 against the dollar.

Interest rate futures on the Chicago Board of Trade showed a nearly 70% chance that the Fed will raise interest rates above 2.00% by the end of this year.

A report released later pushed the greenback even higher. US factory orders rose 1.1% in April, beating the estimate of 0.1%. In the same month, durable goods orders fell 0.6% as expected while core durable goods orders rose 2.4%.

Earlier, the Bank of Australia announced to keep rates unchanged at 7.25% as expected after its monetary policy meeting. Euro zone data released last night were mixed and provided little signal for market direction. Producer Price Index rose from 5.7% to 6.1% in April, but below the estimate of 6.2%. First quarter GDP rose to 0.8%, higher than the estimate of 0.7%.

In the coming session, traders will look into Germany May services PMI (exp 53.7, prev 54.9), euro zone May composite PMI (prev 51.9), euro zone May services PMI (exp 50.6, prev 52.0), UK May services PMI (prev 50.4), and euro zone April retail sales (exp 0.3%, prev -0.4%).

Wednesday morning will see US May ADP employment (exp -30k, prev 10k), US Q1 productivity (exp 2.5%, prev 2.2%), and US May non-manufacturing ISM (exp 51.0, prev 52.0).

EURUSD will face interim resistance at 1.5470, followed by 1.55 and 1.5530. Additional ceilings will emerge at 1.5570, backed by 1.56. Support starts at 1.5420, backed by 1.54, 1.5380 and 1.5350. Subsequent floors are eyed at 1.5320.

USDJPY encounters interim resistance at 105.30, backed by 105.50 and 105.80. Subsequent ceilings will emerge at 106, followed by 106.30 and 106.50. On the downside, support begins at 104.80 and 104.50, followed by 104.30. Additional floors are eyed at 104, backed by 103.70 and 103.50.

GBPUSD encounters interim resistance at 1.9680, backed by 1.97 and 1.9730. Subsequent ceilings will emerge at 1.9750, followed by 1.9780 and 1.98. On the downside, support begins at 1.9620, followed by 1.96 and 1.9580. Additional floors are eyed at 1.9550, backed by 1.95 and 1.9470.

Published on  Tue, Jun 3 2008, 21:12 GMT