FX Drifts, Focus on Central Banks

With little economic data released at the start of the week, the focus in the currency market has shifted to Central Bank rhetoric, with the key highlights attributed to commentary from Fed Chairman Ben Bernanke and ECB President Jean-Claude Trichet. Speaking from the Fed’s annual symposium in Jackson Hole, Wyoming, Bernanke offered an optimistic assessment over the economic outlook saying, “economic activity appears to be leveling out, both in the US and abroad, and the prospects for a return to growth in the near-term appear good”. His upbeat outlook spurred on gains in the equity and commodities markets, while pushing the dollar slightly lower against the majors.

Meanwhile, ECB President Trichet sounded a cautious tone over the economic outlook for the Eurozone, suggesting that interest rates will likely remain low for a protracted length of time. He said, “We see signs confirming that the real economy is starting to get out of the period of freefall”, yet it “does not mean at all that we do not have a very bump road ahead of us”. 

Nonetheless, the major currency pairs continue to drift in a lackluster manner as the summer doldrums have confined foreign exchange to rangebound trading. We remain biased for further dollar weakness in the coming weeks as economic data from the US continue to gradually improve and support the equity markets.