USD Strengthens in anticipation of Bernanke Speech

The dollar gained versus all of its 16 most-traded peers amid speculation about what Federal Reserve Chairman Ben Bernanke will say this week regarding the US economy with the hope of new measures in the US to try to bolster its recovery.

Any hints of a third round of quantitative easing or a lack of will determine the fate of the US Dollar for an indefinite period of time. We assume that quantitative easing, in which the central bank injects new money into the economy, could weaken the value of the dollar.

Bernanke used last year’s annual Jackson Hole speech to hint at another round of quantitative easing, which eventually pumped $600 billion into the financial system.

As we get closer to Friday, the market will come to the conclusion that Bernanke’s speech will likely not include QE3, but will probably allude to it, that it’s a potential and will be left on the table. If QE3 does not occur then we could see the pound weaken back to the 6 week low of 1.58 so a forward contract may be ideal before we potentially see this occur.

The USD spiked yesterday on the back of the stronger than expected US durable goods data which grew by 4% in July beating the 2% estimate. Durable goods are products meant to last at least three years such as cars. With the US GDP data out on Friday it will if anything be a very volatile couple of days for the USD which will have a knock on effect on global currencies so stay in close contact for what I expect to be two very hectic days on the trading floor.

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