Major Pairs Analysis: May 23, 2013

The euro reversed earlier gains against the dollar on Wednesday, and fell after Federal Reserve Chairman Ben Bernanke told the U.S. Congress policy will remain loose for now. In a prepared testimony to the U.S. Joint Economic Committee in Washington, Bernanke told lawmakers ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now. Bernanke added that withdrawing monetary stimulus could prompt interest rates to rise temporarily, but could threaten the country's economic recovery as well as price stability. Bernanke added that while the labor market is showing signs of improvement, long-term employment rates remain high and consumer inflation low.
EUR/USD" title="EUR/USD" width="941" height="661">
GBP/USD
The pound fell to a fresh seven-week low against the U.S. dollar on Wednesday, after comments by Federal Reserve Chairman Ben Bernanke, while expectations for further easing measures by the Bank of England weighed on demand for sterling. In a prepared testimony to the U.S. Joint Economic Committee in Washington, Bernanke told lawmakers ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place as long as necessary. The central bank head said withdrawing monetary stimulus could lead interest rates to rise temporarily, but also carried a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Bernanke added that while the labor market is showing signs of improvement, long-term employment rates remain high and consumer inflation low.

The pound weakened earlier, after the Office for National Statistics said U.K. retail sales fell 1.3% in April from March, the largest fall in a year and confounding expectations for a flat reading. Retail sales rose 0.5% from a year earlier, well below expectations for a 2.0% increase. Separately, the minutes of the Bank of England’s May meeting showed that three policymakers, including Governor Mervyn King, voted in favor of more easing this month, unchanged from April. The International Monetary Fund urged Britain’s government to do more to stimulate growth in its annual review of U.K. economic policies on Wednesday, and warned that austerity measures are posing headwinds to growth. Also Wednesday, a report by the National Association of Realtors said that U.S. existing home sales eased up 0.6% to a seasonally adjusted 4.97 million units in April from March’s revised total of 4.94 million.
GBP/USD" title="GBP/USD" width="941" height="661">
USD/JPY
The dollar edged higher against the yen on Wednesday, but gains were limited ahead of testimony on the economy and monetary policy by Federal Reserve Chairman Ben Bernanke later in the trading day. Investors remained cautious ahead of testimony at the U.S. Joint Economic Committee by Bernanke, amid speculation over whether the U.S. central bank will begin to scale back its asset purchase program this year. The dollar briefly touched session lows against the yen earlier after the Bank of Japan, in a widely expected decision, left monetary policy unchanged. The bank also upgraded its economic outlook, saying growth had started picking up. Also on Wednesday, official data showed that Japan posted a trade deficit of JPY0.76 trillion in April, the tenth consecutive monthly deficit. Exports rose 3.8% from a year earlier, while imports were up 9.4%.
USD/JPY" title="USD/JPY" width="941" height="661">
USD/CAD
The U.S. dollar rose to its highest level in 10 weeks against the Canadian dollar on Wednesday, after official data showed that Canadian retail sales were flat in March. Statistics Canada said retail sales were flat in March, disappointing expectations for a 0.2% gain, after rising by a downwardly revised 0.7% in February. Core retail sales, which exclude automobile sales, fell by 0.2% in March, defying expectations for a 0.2% increase. Core sales rose by 0.7% in February. Investors were awaiting Federal Reserve Chairman Ben Bernanke’s testimony on the economy and the release of minutes from the Fed’s May meeting later in the day. The dollar had been boosted in recent sessions by expectations that the U.S. central bank would begin to scale back its asset purchase program this year. However, investors trimmed bets on the dollar after St. Louis Fed President James Bullard said on Tuesday the Fed should continue its bond buying, and make adjustments as the economy changes.
USD/CAD" title="USD/CAD" width="941" height="661">