Ben Bernanke Helps U.S. Dollar in Currency Trading

Yesterday, Ben Bernanke provided a boost for the U.S. dollar in currency trading on the FX market by indicating that monetary policy could tighten rather sooner than expected by many. He didn't become completely hawkish, but he did indicate that things are moving in train for economic recovery.

GFT's Kathy Lien summarizes part of Bernanke's statement in FX360:

In an unusually candid look into the mind of a central banker, Bernanke spelled out his plans both for rates and exit strategies. What really hit markets first was the comment that a hike in the discount rate may be on its way “before long”. The discount rate is the rate charged to banks for loans directly from the Fed. Bernanke even noted his considerations of using it to replace the Fed funds rate as the key metric to establish monetary policy. However, as to not infer his comments on foreshadowing a shift in Fed opinion, Bernanke reiterated his intention that rates be kept low for an “extended period” and that changes in the discount rate should not be correlated with a change in the monetary outlook.

Today, the U.S. dollar is not doing quite as well today as it did yesterday. The risk trade is back for the Aussie and the loonie, and the pound is trying to regain some of its losses. Greenback is doing well against the euro in forex trading, though, as protests begin over the announced Greek rescue package.