Muted reaction to Ben Bernanke (page 1 of 2)

Euro

As hurricane 'Wilma' battered the Florida coast, the dollar experienced a week of mixed fortunes after contrasting economic data coupled with politically sensitive developments cast a shadow of doubt on the future of US economic growth.

The euro commenced the week on the defensive as talk of further rate hikes in the United States kept the greenback well supported. The nomination of White House adviser Ben Bernanke as Chairman of the US Federal Reserve was also cheered.

However, as market players dug deep into the credentials of the successor to Alan Greenspan, some analysts pointed towards his approach towards inflation targeted monetary policy - a practice the old guru Greenspan opposes. With market debate centred upon the nominee for probably the world's most influential finance job, the euro made little headway as the dollar remained firm in sombre market conditions.

As the US experienced the wrath of nature in the form of "Wilma", the dollar posted steep losses following the release of contrasting data from both sides of the Atlantic. The initial setback came from Germany, where the influential Ifo institute reported that its' monthly gauge of business sentiment stood at a 5-year high of 98.7 in October, up from 96.0 in September.

The index laid to rest talk of a slowdown in German business conditions and stoked speculation of an interest rate rise in Europe, giving the single currency a shot in the arm. The euro also capitalised on a weaker-than-expected reading in US consumer confidence that slipped to 85.0 in October from a revised 87.5 in September.

Analysts said the number raised concerns of hurricanes and higher energy prices forming a lethal combination to slow down the pace of economic growth in the United States. The euro climbed above $ 1.2100 in the aftermath, but struggled to keep its gains as the upcoming US FOMC meeting next week and expectations of further US rate hikes kept the euro's gains in check.

As the week progressed, the dollar recovered some of its losses after being supported by higher longer-term bond yields and inflows by US Corporates cashing in on this year's one time tax-break on overseas earnings. The euro was confined to the upper end of a narrow range, as it derived support from rising demand for euro zone bonds following the upbeat German business sentiment index.

Meanwhile, developments within the US administration where senior officials of the White House were involved in cases of perjury and obstruction of justice undermined confidence in the government and the economy and took its toll on the US currency.

The release of US September durable goods orders data that showed a drop of 2.1 pct, also weighed on the greenback which struggled to stay afloat. News of the indictment and resignation of Lewis Libby - chief of staff of US Vice President Dick Cheney, was treated with caution, as markets remained concerned about the long-term impact of the upcoming trial on the country's administration.

With the dollar having its own share of political woes, better-than-expected third quarter GDP growth of 3.8 pct was greeted with a loud cheer as investors rushed back to buy dollars ahead of the US FOMC meeting next week.

The Fed is widely expected to raise its benchmark Fed Funds rate by 25 bps to 4.00 pct, whilst markets are likely to focus attention on the accompanying statement for a possible adjustment to its 'measured' language. In addition, the release of US manufacturing and employment data will also receive close scrutiny from market players around the globe.

Range for this week: $1.1920-$1.2220

Yen

The yen had a dismal run during the past week, after coming under pressure early due to concerns over the widening interest rate differential between the United States and Japan.