Dollar Rallies Despite Bernanke's Pessimistic Comments and Weak US Data

Last updated 2/24/2009 10:42 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

The US dollar continues to rally against the Japanese Yen (USD/JPY) despite pessimistic comments from Federal Reserve Chairman Ben Bernanke and weaker US economic data.  The bleaker outlook for the US economy is sending investors flocking into the safety of US dollars.  In his prepared comments , Bernanke warned that a recovery could take more than 2 to 3 years.  A turnaround in 2010 is only possible if the the markets and banks stabilize. This is why Bernanke has been a big supporter of focusing relief efforts on the financial sector. He believes that there are still significant stresses in many markets and a sharp contraction in economic activity is expected in the first quarter.  Therefore US interest rates will remain at an exceptionally low level for some time.  His pessimistic sentiment was shared by US consumers.  According to the Conference Board's report, consumer confidence hit a record low in the month of February. In addition, house prices and manufacturing activity have plunged.

Source: FX360.com

Yet the dollar's rally remains unabated against the Japanese Yen despite weak economic data.  It is important to realize that the state of the US economy is not driving the dollar higher. Instead it is the expectation that if the US does not recover, no one else will. Therefore if it will take 2 to 3 years for the US economy to start recovering, it may take 3 to 4 years for other countries to stabilize.

There could still be more surprises in Bernanke's testimony, which is only beginning as he will be facing questioning by the members of the Senate. Although the Q&A session could set the tone for trading this afternoon, the USD/JPY rally has been voracious.  Unless there are new revelations from Bernanke, USD/JPY could be headed to 98.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.