With no US economic data released today, the US dollar traded in a tight range ahead of tomorrow?s speech by Federal Reserve Chairman Ben Bernanke. The topic is inflation and with oil prices solidly above $70 a barrel, the risks are clearly skewed to the upside. When oil prices were above $70 exactly one year ago, inflation shot up globally.
There is no reason for pricing pressures to be different this time around. In fact, the dollar is weaker now than it was then on a trade weighted basis, which means the inflationary pressure could be even greater. Strong and tough words by Bernanke could drive further dollar strength, especially against the Japanese Yen. If the market fails to react to Bernanke?s comments because it has completely priced it in, expect more quiet range trading in the US dollar until we get the trade balance on Thursday and retail sales on Friday.