The dollar has given back some of its early gains versus its major European rivals on Tuesday, but has held on to its gains versus the Japanese Yen. The U.S. currency changed direction after U.S. Federal Reserve Chairman Ben Bernanke began his testimony before the Senate.
The Federal Reserve is prepared to take further action to jump start the sluggish U.S. recovery, the nation’s top central banker told lawmakers Tuesday morning. However, Bernanke offered no hints that the central bank is specifically planning another round of quantitative easing.
“Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook, the FOMC made clear at its June meeting that it is prepared to take further actions as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke said in delivering his twice-a-year testimony to the Senate Banking Committee.
The reduction in the unemployment rate in coming months seems likely to be “frustratingly slow,” and the Fed expects the unemployment rate to hold above 8 percent through year’s end.
However, Bernanke gave a brighter assessment of the housing market. “We have seen modest signs of improvement in housing. In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer, and some measures of house prices have turned up in recent months,” Bernanke noted.
The International Monetary Fund Monday said it approved a fresh loan to Portugal after the country passed a monetary review in connection with its bailout program. The IMF approved the disbursement of EUR1.48 billion after completing its fourth review of the Portuguese economy under an extended fund facility (EFF) arrangement with the government. With the release of fresh funds the total disbursements under the EFF arrangement will reach around EUR21.13 billion.
Just three days after it downgraded the country’s sovereign credit rating by two notches, rating agency Moody’s Investors Service on Monday lowered the long-term debt and deposit ratings of ten Italian banks and the issuer ratings for three Italian financial institutions by one to two notches. All of the banks and financial institutions affected by the ratings cut have a ‘negative’ outlook, which may increase the likelihood of future downgrades.
The dollar reached a high of $1.2188 versus the Euro this morning, but has since eased back to around $1.2250.
German investor sentiment declined for the third month in a row to its lowest level in six months, adding to signs that the euro area debt crisis is hurting the outlook for the region’s biggest economy. The ZEW Indicator of Economic Sentiment dropped to minus 19.6 points from minus 16.9 in June. That was slightly better than economists’ forecast for a score of minus 20.
The buck reached a high of $1.5553 versus the pound sterling Tuesday morning, but has since slipped back to around $1.5620.
U.K.’s annual consumer price inflation eased for a third straight month in June to the lowest level since November 2009, helped by falling fuel prices and heavy discounting to boost sales, the latest figures from the Office for National Statistics showed Tuesday. Consumer price inflation fell to 2.4 percent in June from 2.8 percent in May. Economists expected the rate to remain unchanged at the May level.
Japan’s Finance Minister Jun Azumi said Tuesday that speculative moves are pushing up yen and the currency gains do not reflect the country’s economic fundamentals. Speculative moves mainly influenced by weak outlook for the U.S. economy is driving the currency higher, Azumi was quoted as saying. He said the government is closely watching the developments.
The greenback has rebounded from Monday’s nearly one-month low of Y78.786 versus the Japanese Yen, back to around Y79.100.
With a steep drop in energy prices offset by higher prices for food, medical care, and apparel, the Labor Department released a report on Tuesday showing that overall U.S. consumer prices were unchanged in the month of June. The Labor Department said its consumer price index came in flat in June following a 0.3 percent drop in May. The flat reading on consumer prices came in line with economist estimates.
Industrial production in the U.S. increased by slightly more than anticipated in the month of June, according to a report released by the Federal Reserve on Tuesday, with the increase partly due to a rebound by output in the manufacturing sector.
The Fed said industrial production rose by 0.4 percent in June following a revised 0.2 percent decrease in May. Economists had expected production to increase by 0.3 percent compared to the 0.1 percent drop originally reported for the previous month.
Homebuilder confidence has seen a substantial improvement in the month of July, according to a report released by the National Association of Home Builders on Tuesday, with the index of homebuilder confidence rising to a new five-year high.
The report showed that the NAHB /Wells Fargo Housing Market Index jumped to 35 in July from 29 in June, marking the biggest monthly increase in nearly a decade. Economists had expected the index to edge up to a reading of 30.