The US dollar advanced across the majors amidst hawkish remarks from Federal Reserve Chairman Ben Bernanke at the International Monetary Conference. The Canadian dollar took the biggest plunge against the greenback as oil prices pulled backed to stay under $125/bbl, and was followed by the euro as the currency dipped for a test of 1.5400. The low yielding Swiss franc and Japanese yen gave back yesterday’s gains, as USD/CHF rose toward 1.0450 while USD/JPY jumped to 105.50, respectively. Meanwhile, the British pound tumbled for a test of 1.9600. Falling commodity prices weakened demands for the high yielding Australian and New Zealand dollar, and led the currencies to drop toward 0.9500 and 0.7800, respectively, against the greenback.
A speech by Fed Chairman Ben Bernanke raised the appeal of the US dollar as he highlighted upside inflation risks for the US economy, and expressed a hawkish tone as he signaled that the central bank will keep the benchmark interest rate on hold. Chairman Bernanke also acknowledged the negative repercussion effects that the weak dollar has had on inflation expectations, and went onto say that the stability and strength of the greenback has become a major concern for the Fed. On the economic front, the Commerce Department announced a better than expected 1.1 percent rise in Factory Orders for April, however the unexpected rise in the headline figure did little to move the markets as the report highlighted growing weakness in consumer spending.
Instability in the financial markets continued to spur bearish sentiment in the stock markets as market participants forecast Lehman Brothers to report a $300M loss for the second quarter, and expects the banking giant to raise an additional $4B in order to stave off liquidity pressures. As a result, the DJIA fell 100.97 points to 12,402.85 points, with 20 of the 30 components declining. The broader S&P500 dipped 8.02 points to hold off at 1,377.65 points, with 172 stocks falling to a new 52 week low.
Falling stock prices spurred increased demands for US Treasuries, and led investors to shift their assets into the safe haven of risk free bonds. As a result, the benchmark 10-Year yield fell to 3.900 percent from 3.967 percent, while the 2-Year yield plunged to 2.423 percent from 2.512 percent.
Looking ahead, the MBA Mortgage Applications index will kick off the morning at 11:00 GMT; with the ISM Non-Manufacturing index due out at 14:00 GMT will be the main event risk for the US dollar. Prior to the ISM release, the Challenger Job Cuts index is scheduled for 11:30 GMT, and will be followed by the ADP Employment Change index at 12:15 GMT.