Dollar Mixed Ahead of Bernanke's First FOMC Meeting as Chairman (page 2 of 2)

British Pound

Unlike the Euro, the British pound strengthened against the dollar thanks to firmer mortgage lending reports. According to the BBA, approved mortgages increased by 57.6k in February compared to 45k in January. This is yet another sign that the UK housing market is stabilizing, which is good news for consumer spending.

Overall, we have been regularly seeing stronger data out of the UK. This week will be even more important in convincing the slowly diminishing amount of doves calling for another rate cut to join the neutral camp. The UK will be releasing more housing market reports as well as their fourth quarter GDP numbers.

However, bullish data will still have to contend with the fact that as of Tuesday, the GBP/USD will turn into a negative carry currency. This is the first time that the UK will have lower interest rates than the US in approximately 5 years, which means that those who are long the GBP/USD will now have to start paying interest.

Japanese Yen

In typical pre-fiscal year end mode, the Japanese Yen is rallying as investors and companies repatriate their assets to "window dress" their books. Many insurance companies and pension funds also take this opportunity to rebalance their portfolios based upon changed market conditions.

The Yen has also benefited from carry trade liquidation against the high yielding commodity currencies such as the Australian and New Zealand dollars. These external factors have allowed the market to shrug off weaker business outlook numbers. According to the Ministry of Finance, large companies felt less optimistic in the first quarter.

After US Senators left China this weekend, Chinese President Hu is now set to visit the US in April. This will keep Yuan revaluation at the forefront of the market's talking points.