As we suspected, the US dollar managed to find support after the Fed chairman Ben Bernanke delivered his semi-annual report to the parliament. The US dollar index is approaching now the level 83. Reviewing Bernanke's testimony we can make a logical conclusion that the Fed's policy and expectations are mainly unchanged. Accomodative policy stance and low interest rates will be the key policy components for the forseeable future. However Mr. Bernanke did not exclude QE reduction in the coming autumn.
Now all our attention, although as always, will be focused on labor market data, GDP growth figures and inflation. If economic conditions continue to improve, being our basic scenario, then already in September-October, we can see gradual reduction of asset purchases. Probably the US dollar will be gaining ground, supported by expectations of less QE, but its growth may be not so strong, as it was for instance in June. Next key data will be issued in two weeks, including preliminary GDP growth estimate for the 2nd quarter. Also on July 31 the Fed will hold its next meeting and on August 2 employment data will be released.
Today the US currency is also rising against its main peers. Against the Japanese yen the dollar has already climbed above 100. The yen may be under selling pressure also due to expectations of a pro-government parliamentary elections outcome, which could strengthen positioning of the Prime Minister Shinzo Abe and support his agressive monetary easing policy. European currencies dropped as well. The British pound failed to consolidate above 1.52, although it gained some ground yesterday after Bank of England policy meeting minutes showed all the members voted to keep asset purchases unchanged. The european currency is currently flirting with the level 1.31 after it faced strong
resistance at 1.3150-1.3170.
