Bernanke testimony helps drive dollar lower. More rate cuts to come?

February 14, 2008 - Forex Economic News

Fed Chairman Ben Bernanke spoke on the economy today before the Committee on Banking, Housing and Urban Affairs in the U.S. Senate and hinted that another interest rate cut could be in store. Bernanke's testimony touched upon several areas of the economy that are experiencing tough times such as the banking industry, housing market and the labor market which "softened" in January. The Fed commented that the "softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term."

Overall, Bernanke said that "the outlook for the economy has worsened in recent months, and the downside risks to growth have increased" while "inflation expectations appear to have remained reasonably well anchored." These circumstances seem to forecast further rate cuts as the Fed has been steadily trying to promote economic growth and avoid an economic recession.

The Fed lowered interest rates by 125 basis points in January alone and overall has slashed rates by 225 basis points since September 2007.

The U.S. dollar lowered against the euro and yen after the Bernanke testimony, giving back the gains dollar had made earlier in the day. The dollar had reacted positively to news that U.S. weekly jobless claims decreased and that the U.S. trade deficit had narrowed by 6.9 percent in December and declined 6.2 percent for the year of 2007. The next Fed rate decision comes on March 18th. See Bernanke's full testimony here.

Tags: Bernanke, economic speech, USD, euro, yen, economy

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