FOREX – Focus shifts to Bernanke as U.S. dollar declines

The US dollar went down against the yen and euro earlier this week as traders cut expectations that the incumbent Federal Reserve Chairman might slip indications of tapering bond purchases this week.
The yen was able to recover from a 4-1/2 year low against the dollar. The Japanese yen’s excessive strength was largely amended and identified weakness ought to be corrected to halt further damage to the Japanese market.

Focus was shifted to Bernanke’s statement on Congress earlier following comments by Fed officials who fuelled more assumptions by the central bank about tapering bond purchases sooner than anticipated.

The dollar index which monitors its value against a ton of other currencies went down 0.6 % to just 83.764, retracing from its near three-year highs.

More speculations have grown that the start of the Fed’s colossal bond-buying programme might come as sooner than most investors expected should recent gains in the US hold the labour market. The jagged 50 % rise in the monthly job creation since the programme started increased the chances that the Fed could ratchet back its purchases as early as the coming months.

The dollar fell 0.8 % to 102.31 hitting a low of 102.16 according to Reuter’s data. Moreover, the euro lost 0.6 % to 131.84 yen, it’s lowest so far.

The BOY which will begin its two-day meeting this week is expected to keep existing policies unchanged but could trifle with its plans to purchase bonds to cut back the recent rise in Japanese yields.

Any fall in the dollar/yen towards 101 is a good indication as Japanese policy makers are stern about their plans to purchase more assets and quantitative easing in the long term.
The euro went up 04 % having reached its session peak. However, some analysts say that further gains would only be limited; despite the strong expectations the ECB will cut its rates in deposit.

Any indications of the Fed waning down its asset purchases could pile towards the dollar’s momentum. Although the dollar was relatively weak against other major currencies, with sterling up 0.6 % on the same day the Australian dollar went up 0.9 % it will remain fairly steady in the coming months.