Fed Chairman Bernanke managed turbo charge the US dollar with words yet again it seems.  The Greenback extended gains in London trading on the back of hawkish comments from the Fed Chief in the earlier Asia session.  Mainly, Bernanke noted that the risk of a sharp economic downturn has diminished over the past month, while the inflation problem as worsened.  The market took this as a sign that the Fed is clearly done cutting rates and that rate hikes are next on the agenda.  Indeed, market participants are now pricing in a 52% probability of a Fed rate hike by August and an 82% chance of a hike by the September meeting.

Better economic data in the Eurozone -- in the form of higher than estimated French industrial production and elevated German wholesale prices -- was not enough to bolster the Euro.  EUR/USD opened the session near 1.5597 and would close near the lows around the 1.5500 figure.  Bernanke's comments more than trumped the better data.

The Yen also continued to lose ground against the US dollar.  USD/JPY opened London trading near 106.72 and was sitting at 106.90 at the close.  Poor market performance in Japan -- the Nikkei fell more than 1% -- did not help matters.  Moreover, US bond yields continued to rise.  The 2-year saw its yield rise all the way up to 2.93% on Fed rate increase expectations, and would close up more than 10 bps near 2.85%.

Sterling's (GBP/USD) experience was similar to the Euro's as better than expected economic data out of the UK failed to give the Pound a boost.  UK industrial production was better than expected, rising 0.2% in April after a 0.5% decline the prior month.  Also, a report on UK home prices showed better than anticipated results, with home values up 4.9% YoY in April after a 5.2% rate in March.  Yet GBP/USD was lower in the session, opening near 1.9690 and closing around the 1.9565 mark.
 

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