The U.S. dollar weakened modestly against most of its major counterparts ahead of the Federal Reserve’s conference in Jackson Hole, WY and before economic data that was expected to show that U.S. growth slowed. Fed President Bernanke will be speaking at the conference later today. While many analysts believe that Bernanke will not introduce any immediate stimulus, some have speculated that he will acknowledge that the Fed is ready to act. If he conveys that there is no way the Fed will allow the U.S. economy to deteriorate, and that they will use all policy tools at their disposal, stocks will likely rise and the U.S. dollar will become under renewed pressure. However, should Bernanke refrain from indicating future bond purchases, the dollar could rally as the market would see it as a commitment to avoiding currency debasement. Meanwhile, the economic docket showed that the U.S. economy grew less than previously estimated in the second quarter, capping the weakest six months of the recovery that began in mid 2009. Gross domestic product climbed at a 1.0% annual rate from April through June, down from a 1.3% prior estimate revised Commerce Department figures showed today. The print failed to meet a median forecast for a 1.1% increase.
The Euro pushed higher against the U.S. dollar on general dollar weakness. Indeed, the higher-yielding currency gained on its American counterpart even as global equities slumped. The Stoxx Europe 600 Index lost 1.6% and Germany’s DAX Index slid 2.6%. There was no major economic data released in the Euro-zone today, so the EUR/USD exchange rate will likely take its cues from comments from U.S. Fed President Ben Bernanke. Bernanke is scheduled to start his speech at 10 a.m. New York time. His hint of asset purchases, or quantitative easing, during the same event last year spurred an eight-month advance in the S&P 500 Index and a rally for the Euro versus the greenback.
The Japanese yen advanced for the first time in three days versus the U.S. dollar as Prime Minister Naoto Kan said he was stepping down after parliament passed the final two pieces of his legislative agenda. “I feel I’ve done everything I could under these difficult conditions,” Kan told Democratic Party of Japan lawmakers at a nationally televised meeting today in Tokyo. In addition, Japan’s government will outline measures to help the nation cope with a stronger currency on August 29th, the Nikkei newspaper reported, without citing where it obtained the information.
The British pound held a tight range against the U.S. dollar but fell to its weakest level in two weeks against the Euro as data showed U.K. economic growth slowed and manufacturing shrank, strengthening the case for interest rates to stay at a record low. Gross domestic product rose 0.2% in the second quarter, the Office for National Statistics said today in London. Manufacturing fell 0.5%. Total industrial product, which includes mining and utilities’ output, dropped 1.6%, the biggest contraction since the first quarter of 2009. The weak data comes a day after a report that showed consumer confidence dropped in July, fueling concern the economic recovery is faltering.
