The dollar is currently rebounding from recent weakness against its major competitors on Wednesday, following comments made by Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee.
Bernanke stated that the U.S. economic recovery has continued at a moderate pace but the jobs situation remains “far from satisfactory.” “With unemployment still high and declining only gradually, and with inflation running below the Committee’s longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future,” Bernanke said in prepared remarks ahead of his semi-annual testimony before the House Committee on Financial Services.
Bernanke was vague about the time line for scaling back the Fed’s $85 billion a month bond buying plan, but said he expects the program will be reduced by year’s end. However, he assured the asset purchases will be wound down gradually so as to not derail the fragile economic recovery.
“I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” he said.
“If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2%, or if financial conditions — which have tightened recently — were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.”
Housing starts in the U.S. unexpectedly showed a notable decrease in the month of June, according to a report released by the Commerce Department on Wednesday. The report showed that housing starts tumbled 9.9 percent to an annual rate of 836,000 in June from the revised May estimate of 928,000.
The steep drop came as a surprise to economists, who had expected housing starts to climb to an annual rate of 951,000 from the 914,000 originally reported for the previous month.
Meanwhile, the Commerce Department also said building permits fell 7.5 percent to an annual rate of 911,000 in June from the revised May rate of 985,000. Building permits, an indicator of future housing demand, had been expected to rise to an annual rate of 990,000 from the 974,000 originally reported for May.
The Bank of Portugal on Tuesday lowered its 2014 growth forecast for the economy, reflecting possible impact of the planned fiscal consolidation measures.
Releasing its latest economic projections, the central bank said it expects the gross domestic product to grow 0.3 percent in 2014, much weaker than 1.1 percent growth projected earlier. This reflected “a strong decline in government expenditure” and weaker private consumption.
For 2013, the bank now sees 2 percent GDP contraction, up from 2.3 percent decline predicted earlier. The improvement in the bank’s estimate mainly reflected significant increase in exports. However, domestic demand will record a strong decline, the bank said.
The dollar slipped to a low of $1.3177 against the Euro on Wednesday, but has since climbed to around $1.3085.
Eurozone construction output fell 0.3 percent month-on-month in May, following a 1 percent rise in April, Eurostat reported Wednesday. At the first rate-setting meeting of Mark Carney as Governor, Bank of England policymakers united on both quantitative easing and interest rate, the minutes showed Wednesday.
Carney got the support of members on issuing forward guidance as well as consensus on stimulus after Paul Fisher and David Miles dropped their call for more stimulus.
The Monetary Policy Committee voted 9-0 to maintain the asset purchase programme at GBP 375 billion. Also, the MPC unanimously decided to retain the bank rate at 0.50 percent.
“For most members, the current policy setting was appropriate and the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely, subject to keeping inflation on track to hit the 2 percent,” the minutes said.
They made it clear that any tightening of monetary policy is long way off. A minority assessed the merit in pursuing a “mixed strategy” with regards to the different policy instruments at the MPC’s disposal.
The greenback sank to a 2-week low of $1.5266 against the pound sterling on Wednesday, but has since bounced back to around $1.5180.
The number of Britons claiming the job seekers’ allowance recorded the steepest decline in three years in June, in a sign that the economic recovery is gaining strength.
The claimant count, which is the number of persons seeking jobless benefits, was 1.48 million in June, down 21,200 from May, the Office for National Statistics said Wednesday. This was the largest drop since June 2010. Economists expected the figure to fall by 8,000.
The buck has rebounded from yesterday’s low of Y98.881 against the Japanese Yen, to around Y99.750 on Wednesday.