Euro plays off reports that Weber’s out of running for top ECB job
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar gave up gains against the Japanese yen and the British pound Wednesday as Federal Reserve chief Ben Bernanke’s congressional testimony pushed U.S. Treasury yields slightly lower, making the greenback less attractive.
The U.S. also extended a decline against the euro.
The dollar index (DXY 77.67, -0.33, -0.43%) , a measure tracking the greenback against a basket of currencies, fell to 77.639, off from 77.784 before Bernanke’s testimony was released and down from 77.962 late Tuesday.
Traders will especially listen to the question-and-answer portion during Bernanke’s first appearance before Congress since Republicans regained a majority in the House of Representatives in the last election.
The euro (EURUSD 1.3706, +0.0082, +0.6019%) rose to $1.3713, up from $1.3685 earlier and from $1.3634 in late North American trading Tuesday.
Against the yen, the dollar ceded gains to trade at 82.35 yen (USDYEN 82.4300, +0.1000, +0.1214%) from ¥82.38 late Tuesday.
The British pound (GBPUSD 1.6115, +0.0051, +0.3175%) turned up to $1.6118 compared to $1.6071.
Bernanke’s prepared comments were very similar to a speech he made last week, focusing on strength in the economy but continued support for the Fed’s bond-buying program, sometimes called quantitative easing or QE. Read more on Bernanke.
“Bernanke is likely to be grilled on the Fed’s latest round of QE,” said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets. “Many senior Republicans are concerned about the long-term inflationary impact of the Fed’s asset purchases.”
U.S. 10-year note yields, which move inversely to prices, fell, after touching the highest since April in the previous session. Read more on Treasury bond yields.
“Bernanke held his dovish tone adding some context to improving economic fundamentals that the market has been digesting for some time,” said Eric Green, chief U.S. rates strategist at TD Securities. “Bernanke will continue to see the glass as half empty as a means to keep market expectations for a looming exit strategy as a later-rather-than-sooner development.”
Kathleen Brooks, research director at Forex.com, said that while Bernanke has emphasized weakness on the jobs front, markets have taken their cue from his comments on an improving growth outlook.
Bernanke’s speeches have tended since the end of August to coincide with the dollar appreciating rather than falling, she pointed out in a research note.
The dollar’s “increasingly showing signs that it is trading like a growth currency, and the market seems to be ruling out the prospect of further quantitative easing from the Federal Reserve,” Brooks wrote.
The next ECB president
Before its reversal, the euro had dipped as low as $1.3609 after news reports out of Europe that German Bundesbank President Axel Weber has dropped out of the running to succeed Jean-Claude Trichet as head of the European Central Bank. Trichet’s eight-year term ends in October. See more on European Central Bank.
Weber would likely have proven to be extremely hawkish on inflation and may have pushed for raising interest rates too soon to suit those euro-zone members that are still struggling, economists said.
Still, the European Central Bank will continue to be driven by its sole mandate on price stability, economists said.
The euro’s recovery Wednesday came as the Bundesbank issued a statement saying it “denies rumors concerning an impending statement on the professional future” of Weber.
Klaus Regling, the German head of the European Financial Stability Facility, is seen as a strong candidate for the post if Weber is unavailable, economists said.
Juergen Stark, a member of the European Central Bank’s governing council, is another possibility, said strategists at Brown Brothers Harriman.
