New Fed Comments Send Dollar into Retreat

The recent U.S. Dollar rally paused as investors reconsider comments made by two officials of the Federal Reserve which contradict Ben Bernanke’s statement last week which suggested that the Fed’s asset purchasing program was likely to be imminently curtailed. Analysts say that the less dovish (than Bernanke) comments made by Presidents Richard Fisher and Narayana Kocherlakota of the Dallas and Minneapolis branches of the Federal Reserve system, respectively, are likely to bring market expectations back to reality.

Indeed, as reported at 12:16 p.m. (JST) the U.S. Dollar Index quickly pulled back from the recently struck 3-week high and slipped 0.2% to trade at 82.381 .DXY while the EUR/USD pair moved higher from $1.3059 to $1.3129. The dollar sell-off was even more substantial against commodity-linked pairs which were hit hard as carry trades were quickly unwound by market players. The AUD/USD pair moved well away from Monday’s 33-month low to trade at a session high $0.9274, while the NZD/USD pair was trading as high as $0.7774 before slipping back to $0.7757. Currency strategists still believe that the U.S. Dollar is poised to strengthen in the longer term and are recommending that investors cautiously increase their exposure to long U.S. Dollar positions.