When the U.S. Federal reserve chairman, Ben Bernanke announced on Tuesday that a slowdown in housing construction would remain a drag on economic growth "somewhat longer" than expected, the dollar exchange rate dropped against the euro immediately.
The same situation occurred with the dollar exchange rate against the yen, pound and Swiss franc, when Ben Bernanke announced that tighter lending standards for mortgages would "restrain" housing demand. The U.S. currency dropped earlier, when the European Central Bank and the Bank of England mentioned about higher interest rates at meetings this week, which increased the exchange rate of local currencies.
Michael Malpede, a senior currency analyst in Chicago at Man Global Research, said: "Bernanke's comments added to the dollar-selling momentum. The market is taking the tone of Bernanke as a little bit dovish. He is painting a bearish picture of the housing sector. This may cool market speculation that we are going to see a rate hike."
If during late Monday the euro equaled to $1.3492, and the pound to $1.9914, at 4 p.m. today euro rose to $1.3520, and the pound to $1.9924. The dollar dropped to ¥121.395 from ¥121.765 and to 1.2181 Swiss francs from 1.2235 francs, during the same period of time.
Greg Salvaggio, vice president for capital markets at the currency trading firm Tempus Consulting in Washington, said: "The dollar-negative sentiment is coming back. The Fed is really pigeonholed to have a hawkish posture on interest rates this year. With central banks in the euro zone and U.K. continuing to raise interest rates, it is very difficult to buy the dollar right now." He also made a forecast that by the end of the year the euro would climb to $1.40 and the pound would rise to $2.05 or $2.07.
However the dollar went a little bit up after it was announced by a private report that services industries grew last month more than economists had predicted.
During the conference in Cape Town the Fed chairman said that the housing slump had not spilled over into other parts of the U.S. economy, and he maintained a forecast for "moderate" growth.
On Wednesday there will be the meeting of the European Central Bank and Australia's central bank in order to set rates, which will be followed by the meeting of Bank of England and the New Zealand central bank on Thursday. The Federal Reserve has a target rate for overnight loans to be 5.25 percent, and the benchmark rates of 3.75 percent in the euro zone, 5.5 percent in Britain, 6.25 percent in Australia and 7.75 percent in New Zealand.- Alla Harutyunyan for HULIQ,COM
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