Since the dollar marked its unfavorable milestones late in the US session yesterday, traders around the world have jumped in to sell the battered currency. Now at record lows, bulls have quickly lost hope in a possible rebound from an overextended greenback. In fact, looking across the market, we have seen the influences of an unwanted dollar on otherwise sound technical formations among the majors. Momentum in EUR/USD pushed the pair through the closely watched 1.50 level and quickly surpassed 1.51 in the same session.
Those currencies with high yields and hawkish central banks proved especially attractive to those wanting to short the dollar. NZD/USD rallied to a new multi-decade high of 0.82 while the Australian dollar broke to a new 23 year high. This follow through momentum wasn’t found on sentiment alone, however; Fed Chairman Ben Bernanke’s semiannual testimony before the House Financial Services Committee certainly played its part. Few major changes were made in the central banker’s outlook for economic activity and Fed policy from last week’s minutes from the January 29-30 FOMC meeting; though his commentary did confirm the outlook for further policy easing. In his testimony, Bernanke said the policy group would be “carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.” In addition to his concern for growth, Bernanke had also recounted concern over inflation trends. While these worries have been present in the Fed’s commentary for some time, more media outlets and analysts have connected the dots and taken these forecasts to mean the economy will fall into a period of stagflation. Besides the Fed Chairman’s dour commentary, the market had further reason to sell dollars from two disappointing indicators. The Commerce Department reported a 5.2 percent drop in durable goods orders – the biggest such contraction in a year – predominately due to the drop in consumer sentiment and its expected effect on American’s spending habits. And, keeping the pressure on the housing market’s recession, new home sales dropped a greater-than-expected 2.8 percent to a 588,000-annual pace, now the weakest since 1995.