Nervousness in the Forex market resumed as dented US home sales and the Fed’s exit scheme weighed on the Fed’s pledge to low rates. Yesterday the Fed Chairman Ben Bernanke gave his Semi-Annual testimony to Congress. The Fed chairman outlined the move last week to raise the discount rate to 0.75% was strictly a move towards normality and does not pose a preliminary move towards a hike of the benchmark rate. The Fed chairman reiterated the benchmark rate will be low for an extended period stressing that the US job market remains extremely fragile and acts as a lager on the US economy. The Fed chairman emphasized the importance of the housing market as US banks hold a substantial exposure to the market. However the chairman gently avoided reference to the weak housing figures as to prevent fears over the Feds intention to exit the Mortgage debt market.
Meanwhile data from the housing market painted a gloomy picture for US Real-Estate with home sales falling by 11.2% MoM to an annual pace of 306k houses a year, a low not seen since measurement started back in the 60s. The Fed’s intention to gradually exit more than 1 Trillion of mortgage debt it holds, clouded its pledge for low rates and spurred speculations the Fed is in a gradual move to squeeze excess liquidity out of the system. Forex players rather than placing Dollar bids on the low rate outlook crowded their bets on the Dollar and Yen to curb risk. Adding to the FX unrest was the circling rumors Greece will suffer further deterioration in its credit rating this morning. The Yen moved to a one year high against the euro trading under 120.5¥ per Euro and was able to breach the 90 support against the Dollar. The Dollar edged higher and traded around 1.34 and 1.53 against the Euro and the Sterling respectively.
Euro at one Year low against the Yen
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