Dollar Fell on Bernanke Testimony

The dollar slid further across the board after the Fed Chairman Bernanke testified in front of the Congress. The euro hovers just below the 1.47 level against the dollar, while the sterling climbed to as high as 2.1116 versus the dollar. The yen also gained against the dollar from above 113 to a session low at 112.07.

Bernanke today warned that the housing sector conditions may become more severe, increasing worries over the housing and credit issue. He also said the nation¡¯s economic growth may slow noticeably, raising expectations for further rate cut. Interest rate futures showed traders are pricing in an 82 percent chance that the Fed will cut interest rates by a quarter-percentage point in December.

The Euro and sterling remains robust against the dollar after the European Central Bank and the Bank of England left their interest rates unchanged at 4.0% and 5.75% respectively as expected today.

The ECB and BOE postponed rate hikes they planned earlier because of this summer¡¯s global financial market turmoil triggered by US credit crunch. Before the extent of damage from subprime loans related investments are clear, the banks need to keep cautious and do not rush raising rates though the inflation seems to be elevated. In the short term, these two central banks are more likely to keep their benchmark rates unchanged.

While global equity market fell today, investors cut their risk appetite. The yen, as a low yielding currency, benefited from the decline in carry trades.