Dollar flexes muscles before Bernanke pep-talk

Euro – The euro reached $1.4452 but technically speaking continues to put in a series of lower highs on each rally. Friday’s optimism was earlier sparked by a Financial Times report that EU leaders were likely to sit down and discuss a new version of Finland’s recently agreed collateral agreement with Greece. Rather than cash, the agreement explores the possibility of real estate or equity stakes in state-owned assets claims the FT. Early optimism that the euro would remain in favor over the dollar post-Bernanke gave way to selling with the single currency easing to $1.4395.

British pound – The pound is sitting on a two-week low against the dollar at $1.6268 as it is per euro at 88.52 pence after a weak GDP report. The economy grew by 0.2% in the second quarter and expanded at a 0.7% annual pace. The more important services sector grew by 0.5% while manufacturing output fell by as much. Overall industrial production, which adds utility and mining output, contracted by 1.6%. MPC outsider Martin Weale confessed that the shakier external environment was behind his decision this month to drop his call for a tightening of monetary policy. Asked by the Yorkshire Post newspaper whether a resumption of asset purchases might be warranted Mr. Weale said that although remote at this point, he might back such a call if banks’ aversion to lending should increase. Given the vice-like fiscal austerity measures aimed at delivering a balanced budget within half a decade the pound continues to look vulnerable to a weakening economy.

Aussie dollar – Investors dashed back in to the Aussie unit when they heard Reserve Bank Governor Glenn Stevens seemed to warn over inflation in testimony to parliament. The Governor said inflation “bears watching carefully but we can keep it under control.” The remarks vindicated the Aussie bulls looking beyond the global debt crises expecting growth to resume leaving the central bank on a tightening trajectory. It may be a long time before those storm clouds clear, however. The Aussie hit $1.0516 before it soured in New York to $1.0478 U.S. cents.

Canadian dollar – Not to be outdone by a huge spike lower on Thursday the greenback exacted revenge on the Canadian dollar following a weaker than forecast GDP report. The Canadian unit slumped to a low at $1.0082 cents as investors picked holes in a 1% second quarter pace of annualized growth in the world’s number one economy.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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