• USD: Lower, Bernanke discusses an exit plan, says unemployment to remain elevated
  • JPY: Higher, BOJ minutes state concern about the outlook for jobs and wages in Japan
  • EUR: Higher, supported by gains in cross trade to GBP
  • GBP: Lower, UK budget deficit reaches record high, Bean says above target inflation would trigger tightening
  • CAD and AUD: AUD & CAD higher, upbeat RBA economic outlook, BOC holds rate poly steady

Overview

USD traded mixed to lower in Tuesday's trade as investors digest Fed chairman Bernanke's outline of an exit strategy from quantitative ease. According to an article written by Bernanke in today's Wall Street Journal, Bernanke expects the Fed to raise interest rates at some point to combat inflation risk and he is confident that the Fed has tools to raise borrowing costs when the economy recovers. He also made it clear that the Fed will remain accommodative for some time to come. GBP underperformed pressured by report of a record UK June budget deficit and comments from the BOE's Bean that weaker GBP should help to boost UK exports. CHF showed limited reaction to report that the Swiss National Bank raised its foreign reserve currency holdings to their highest level in 12 years with 60% of the reserves held in EUR. This could make it more difficult for SNB to sustain intervention efforts to weaken the CHF. JPY opened lower as Asian equity markets continued to rise and the minutes from the BOJ June policy meeting showed that a number of BOJ board members remain concerned about the outlook for jobs and wages in Japan. The commodity currencies continue to benefit from rising crude prices and optimism about the global recovery. AUD was supported by the minutes from the June RBA policy meeting which state that downside risks have diminished for the Australian economy. The BOC elected to hold rate policy steady as expected and said that economic activity has begun to expand in many countries. In his testimony before Congress, Bernanke said that the pace of economic decline has slowed significantly, job losses weak housing market and tight credit conditions will limit consumer spending, unemployment will peak at end of 2009 but remain high, growth will accelerate in 2011 and accommodative policy will extend for a long time. USD edged higher in reaction to Bernanke’s warning that US unemployment will remain high which means US recovery will be weak.

Today’s US data:

No major US economic data was released in today's trade.

Upcoming US data:

On July 23rd initial jobless claims for the week ending 7/18 will be released expected 540k compared to 522k last week. Existing home sales for June will also be released on July 23rd expected at 4820k compared to 4770k last month. On July 24th July final University of Michigan consumer sentiment will be released expected 73.4 compared to 70.4 last month.