Forex U.S. Review – Dollar eases after initial surge from Bernanke speech

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The euro fell against the dollar immediately after Bernanke’s speech since he failed to signal on another round of quantitative easing. EURUSD plunged to 1.4329 then quickly rebounded to 1.4501 as the Fed Chairman said there are still tools available for the Fed to use to stimulate a recovery, basically leaving the door open for future U.S. economic stimulus. This usually results in dollar weakening as it involves printing more money. Bernanke also increased the policy panel meeting to two days from one in September to discuss additional monetary stimulus, offering some hope to investors for further action down the road.

GBPUSD dipped over 90 pips to 1.6206 as dollar strengthened right after Bernanke’s speech at the central bankers meeting in Jackson Hole, Wyoming where the Fed Chairman neither gave the green light to QE3 nor the red light either, allowing cable to rebound back up to 1.6348 by the end of the U.S. session.

USDJPY spiked up to 77.06 from 76.49 after Bernanke’s comments but soon eased off to 76.64 by the end of the session as investors realized that despite the failure of directly hinting on QE3 at least he mentioned that he has “a range of tools” he could use to boost the U.S. economy.

USDCHF surged to 0.8155 from 0.7926 but soon tapered off to 0.8068 . Initially after the Fed Chairman’s speech, risk sentiment picked up and investors shifted away from the safe haven Swiss franc since the speech didn’t mention further quantitative easing meaning the world’s largest economy isn’t in such bad shape. But after reassuring investors that U.S. growth is safe in the long run and that the Fed still has tools to aid the recovery if needed, this led the dollar to fall again. Meanwhile, markets are jittery when franc strengthens too much since there is still the risk of SNB intervention to curb franc strength.

USDCAD initially jumped to a one week high as the Canadian dollar weakened shortly after Bernanke’s comments as expected and markets reacted negatively. But soon investors digested his speech and realized that no harm had been done either, so they resumed their ascent as risk sentiment picked up and USDCAD fell back down to 0.9825 from 0.9921.

Gold rose in the U.S. session for a second straight day to $1,827, accelerating its rise after Federal Reserve Chairman Ben Bernanke failed to signal an offer on further stimulus for the economy. While Bernanke said the Federal Reserve has the tools to spur growth, he refrained from outlining a plan for a third round of quantitative easing, which is what gold investors needed to hear. But they will have to wait for the policy meeting in September.