Forex Investment and Currency Trading

Commodity prices have slipped back, helping lift the USD broadly. The underlying trend remains firmly against the USD on a number of fronts but it is possible perhaps that Chairman Bernanke’s comment Monday that the Fed was “attentive to the implications of changes” in the value of the USD has prompted a little more caution on the currency. These remarks do not seem to be signalled heightened Fed concern about the USD. Rather, it was a basic reiteration of the Fed’s previous comments on the matter. The Fed is only concerned about the value of the USD in as far as the exchange rate affects domestic inflation. That is all. Mr Bernanke’s confidence that Fed policies will support the USD extends only as far as his belief that low inflation will draw investors to US asset markets. There was no indication here, implicit or otherwise, that the USD is a direct worry for the Fed or that policy will be driven simply by a further fall in the currency. There’s nothing new in these sorts of comments (Bernanke expressed similar sentiments in mid 2008) and the remark was not designed as a deliberate attempt to provide the dollar with some “verbal” support to coincide with President Obama’s trip to Asia. It is inconceivable in the current environment that the Fed is overly concerned about the impact of the USD on domestic prices; while USD weakness seems likely to pull import prices higher over time, the pass through to CPI may be relatively low. Fed policy will remain on hold for quite some time to come still.