It certainly appears that a lot of has been read into Bernanake comments overnight, at least by currency investors. The US dollar has rebounded overnight after another poor week supported in part by the Fed Chairman’s remarks (highlighted above). However, Bernanake comments are really not that new. Other officials have stressed that when the economy stabilises than accommodative measures would be removed. Given the negative momentum that the US dollar has experienced a rebound in the greenback was not out of the question. But the currency market is not just functioning on the back of economic reports or news.

Over the past week there has been increasing speculation in the currency market of potential central bank intervention. Last night both Reuters and CNBC posted reports that Asian central banks were said to be intervening in the currency markets buying dollars. The central banks quoted were South Korea, Hong Kong, Taiwan, Thailand and the Philippines. There has also been an indication that Russia has also bought as much as $4bn this week, $1.4bn overnight.

Against the core 16 currencies there has been little change for the US dollar and this could be partially explained by the speculation that Russia, at least, has been actively converting dollars to euros to build up alternative reserves. Although this could provide a longer term underlying threat to the dollar, in the short-term, at least, there is a raised expectation that further intervention to support the US dollar could occur. The most prominent core currency that this might affect is the Yen. During and since the G7 meeting last week, Japanese official rhetoric has pointed more towards the increasing probability of intervention unless the yen starts to weaken. A break below Y87.75 could provide the trigger for such action.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.