Fed to Change Policies as Recovery Takes Place

The US dollar pulled back from a 14 month low on Friday after remarks by Federal Reserve Chairman Ben Bernanke who said that the Fed will tighten monetary policies when recovery is apparent. The Canadian dollar rose as data showed that Canada added sic times as many jobs than expected in September and a huge fall in unemployment throughout Canada. The greenback also pulled back from a two week low against the euro and also gained on the Japanese yen.

Low Rates and Quantitative Easing Dollar Negative

Bernanke also said that the Fed must continue to stimulate the economy but also said that the Fed cannot do so indefinitely due to inflation fears. Low interest rates and quantitative easing have put downward pressure on the dollar during the current recession. Vassili Serebriakov of Wells Fargo stated, “The mere fact that Bernanke mentioned tightening in his speech, especially given the fact it’s towards the end of the week, provided some excuses to take profits on short dollar positions. The market has been running with the idea that the Fed is going to be on hold for a very long period of time, probably longer than a lot of other major central banks.”

DXY Gains

On Friday the ICE Futures U.S. dollar index (DXY) rose 0.4% to 76.251 after hitting a 14 month low of 75.767 on Thursday. Some currency experts said that Bernanke was only stating the obvious and believe the Fed’s next move will be a rate increase in the third quarter. The Canadian dollar hit a one year high after Canadian data showed job gains of 30,600 in September. Earlier predictions had pegged job gains at 5,000 and the news was a pleasant surprise for Canadians. The US dollar fell 0.5% vs. the Canadian dollar and traded at C$1.0464 after falling as low as C$1.0426.

Dollar Gains on Yen

The dollar vs. euro gained 0.3% and the euro traded at $1.4750. The dollar also gained against the Japanese yen posting a 1.2% gain at 89.47 JPY.