The dollar index is largely flat as the green back trades mixed against its G10 counterparts following mixed housing data, a downbeat Beige Book, and the second day of testimony by Fed Chairman Bernanke. U.S. Treasury yields fell across the curve and equities rallied on hopes that officials may do more to stimulate the economy. The DJIA1 and S&P 5001 finished the day higher by around +0.80% and +0.67% respectively.
Before the House financial services committee, Bernanke said that “unemployment is an enormous problem” and that the Fed still has the capacity to purchase more bonds. He reiterated that the recovery has decelerated and the Bank is assessing whether the slowdown is temporary. He reiterated yesterday’s comments that monetary policy is no panacea and noted that the contractionary fiscal policy is inhibiting growth as he urged lawmakers to create a credible plan for fiscal stability.
The Fed’s Beige Book pointed at slowing growth with weaker manufacturing and retail spending. The report said growth was “modest to moderate” since the last release and indicated “tepid” improvement in employment in most districts. A bright spot in the data today was June housing starts which rose by 6.9% to 760K – the highest level since late 2008. Weekly mortgage applications were up 16.9% and building permits fell by more anticipated with a drop of -3.7% to 755k from an upwardly revised 784k in May.
The Bank of Canada issued its quarterly Monetary Policy Report and acknowledged weakening global growth prospects as a headwind to economic activity. The BOC went on to say that domestic factors (consumption and business investment) are expected to support moderate growth with no contribution from government spending. The Loonie remained mostly firmer against the majors and was also supported by higher oil prices (WTI1 currently higher by +0.72%) after weekly U.S. crude oil inventories fell by -809K barrels.
On the data front for the Asia/Pacific session are Australia’s 2Q NAB business confidence, June RBA FX transactions, and a speech by the RBA’s Heath. Japan will see the release of the May all industry activity index, leading and coincident indexes, and June department store sales.