Thursday, August 25, 2011

Market Morning Overview - August 25, 2011

Previous session overview

The dollar gained slightly on its counterparts in Asia Thursday, supported by growing speculation that Federal Reserve Chairman Ben Bernanke likely won't pledge any additional monetary easing in a speech at the central bank's gathering in Jackson Hole Friday. 

Some observers say the fact that Bernanke has not said anything to encourage the view that he will signal further action highlights the unlikelihood of such a move. A Wall Street Journal report said Bernanke's aides have also been quiet on the subject. 

The common currency has failed to bounce back to the recent high of USD1.4500 it touched Tuesday.

At 0450 GMT, the euro was at USD1.4407, down from USD1.4415 late Wednesday in New York. The dollar was also up against the yen, at JPY76.98 from JPY76.97. The ICE Dollar Index was at 74.051, up from 74.031. The euro traded hands at JPY110.89 compared with JPY110.94.

The euro and sterling are hardly changed against each other, while the Swiss franc is slightly higher.

The Australian dollar was lower late Thursday but markets globally were on hold ahead of a speech Friday by U.S. Federal Reserve Chairman Ben Bernanke which is expected to set the direction for trading over coming weeks. At 0600 GMT, the Australian dollar was at USD1.0439, down from USD1.0480 late Wednesday. Against the Japanese yen, the Australian dollar was at JPY80.42, up slightly from JPY80.34.

Market expectation

Much of the market's focus remains on U.S. Federal Reserve Chairman Ben Bernanke's upcoming speech on Friday. With the U.S. economy appearing to be decelerating, speculation is rife that the Fed chief could unfurl new measures to stimulate the economy.

The absence of any additional monetary easing steps, which would weigh on interest rates, would be positive for the dollar ahead, dealers and analysts said. The euro could suffer as a consequence, some said. 

Dealers in Tokyo continued to say they don't expect the Japanese government's new measures against the strong yen to have any major impact for now. Japan on Wednesday announced a two-pronged offensive aimed at curbing the currency's strength, creating a USD100 billion fund to help spur investments by companies operating abroad and imposing new rules requiring financial firms to disclose their foreign exchange holdings.

European stocks are expected to start modestly higher Thursday, following positive sessions in the U.S. and Asia, though gains will be muted as expectations the Federal Reserve will announced further monetary stimulus this week are starting to peter out.