Why is the US dollar under pressure today?
The US dollar (Currency:USD) is on the back-foot across much of the global currency market space on Thursday.
A look at the spot market rates shows the pound versus US dollar is 0.75 pct higher at 1.5133.
The euro dollar exchange rate is 0.7 pct higher at 1.3069.
NB: The above are spot market quotes to which your bank will affix a discretionary spread. However, an independent FX provider will guarantee to deliver between 2% and 5% more currency by beating your bank's spread. Please learn more.
US Dollar - No Help From the Fed
Kathy Lien at BK Asset Management tells us why the US dollar is under the hammer on Thursday morning:
"The U.S. dollar received very little support from the FOMC minutes or Bernanke's testimony. Interestingly enough, this was not because the central bank did not talk about tapering, quite the contrary the minutes revealed a healthy discussion on the topic. Instead, the problem was that there was quite a bit of divergence in views at the last meeting.
"While Bernanke said the central bank could begin tapering in 2013 and end asset purchases in 2014, the notes from the discussion showed more inconsistency. The minutes said many officials wanted to see labor gains before tapering begins but the confusion came when they also said half see bond buying end this year and "many" others saw bond buying into 2014.
"What this screams of is more contradiction than agreement inside the Fed. Reading between the lines, a good number of policymakers want to start reducing asset purchases this year and end it completely by December but there's also a good number who want it to continue into 2014. So the compromise could be exactly what Bernanke described at the last meeting, which would be to start the process of tapering this year but hold off on ending purchases until 2014 when there is evidence of a stronger labor market recovery.
"We still believe that the Fed will start tapering in September barring any major shocks to the economy. At his speech in Boston, Bernanke didn't say much outside of reminding the market that policy will remain highly accommodative for the foreseeable future and a rate hike won't come until well after the jobless rate hits 6.5%.
"Unfortunately the dollar did not receive the unambiguous sign from the Fed about the timing for tapering that it needed to extend higher. So instead profit taking has hit the pair, which dropped below 100 against the Japanese Yen and came within of a whisker of 1.30 against the euro.
"Looking ahead, while we view the pullback in the greenback as temporary, the lack of significant catalysts for the rest of the week could mean additional profit taking or losses for the dollar."