Market Review - 21/05/2013 21:50GMT

Dollar retreats broadly on Fed Bullard's comments


The greenback pared early gains against majority of its peers ahead of Fed Chairman Ben Bernanke's testimony in Congress on Wednesday after St. Louis Fed President James Bullard dented hopes that the Fed might taper its bond purchases anytime soon.

Fed's Bullard said 'asset buying is best policy option for central banks when interest rates near zero; Fed should continue QE, adjusting pace of bond buying according of incoming data.'

Versus the Japanese yen, the greenback rallied at Asian open and rose to 102.76 in Asian morning after Japan Economy Minister Akira Amari clarified his weekend's comments regarding the yen's recent weakness. Dollar continued to trade with firm undertone and climbed to an intra-day high at 102.89 ahead of New York open. However, dollar pared intra-day gains and tumbled to 102.25 in New York afternoon after St. Louis Fed President James Bullard said policymakers should continue buying bonds because it's the best available option to boost growth that is slower than expected.

Japan's Amari said 'hope fx market can strike balance between impact on imports n exports; no comment on whether correction in excessive yen strength is over; hope fx market settles at a level in line with economic fundamentals.'

Although the single currency dropped sharply to 1.2863 in early Asian morning, price rebounded to 1.2902 at European open. However, euro met renewed selling there and dropped to sAession low at 1.2841 ahead of European open before rallying in New York morning on dollar's strength following comments from Fed's Bullard. Price eventually rose to an intra-day high at 1.2934 in New York afternoon before easing.

Although the British pound came under selling pressure at Asian open and dropped to 1.5221 in Asian morning, price recovered to 1.5263 at European open. However, cable met renewed selling there and tumbled in European morning after a government report showed inflation slowed more than economists forecast, giving the central bank more room to boost stimulus that tends to weaken a currency. Price continued to ratchet lower and hit an intra-day low at 1.5113 in New York morning. Later, the pound pared intra-day losses and rebounded strongly to 1.5180 in New York afternoon on dollar's weakness before stabilising.

U.K. CPI in April came in at 0.2% m/m n 2.4% y/y, lower than the forecast of 0.4% n 2.4% respectively.

In other news, ECB's Liikanen said 'ECB measures have helped narrow bond spread; ECB measures have credibility.'

On the data front, German PPI in April came in at -0.2% m/m n 0.1% y/y, vs the expectation of -0.1% n 0.2% respectively.

Data to be released on Wednesday:

Australia consumer confidence, Japan trade balance, export, import, BoJ rate decision, EU current account, UK BoE meeting minutes, PS net borrowing, CBI industrial trend, Canada retail sales and U.S. existing home sales.