Dollar Index below 79, Targeting at March Low - 27.3.2012

US Dollar The dollar weakened dramatically yesterday as the Federal Reserve chief Ben Bernanke signaled that further policy easing may be still on the table. In particular further significant improvements in the labor market “will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” Bernanke said at an economic conference. The current drop in unemployment rate to 8.3% may reflect “a reversal of the unusually large layoffs that occurred” in the previous several years, while “conditions remain far from normal… well below pre-crisis peaks,” he added. The dollar index bottomed at 78.87 yesterday, the lowest level since March 1, and remained below 79 in Asian trading hours. Today the Fed president is giving a lecture at George Washington University. Euro Demand for the euro on the contrary was strong yesterday. The single currency appreciated against the greenback and the Japanese yen before finance ministers from the euro area meet at the end of the week. German Chancellor Angela Merkel supported in one of the recent interviews the idea of combining the current temporary European financial stability facility with the permanent European stability mechanism, which starts operating in July, so that the total capacity would reach almost 700 billion euros. At the same time the ECB president Mario Draghi encouraged governments to take further decisive measures, despite recent improvements in investor confidence. “No single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal,” Draghi said. The euro rocketed to 1.3367 versus the dollar, the highest in March, and touched a one-week high of 110.92 versus the yen. Australian, Canadian Dollar The loonie and the aussie also strengthened considerably against the US counterpart yesterday. The Canada’s currency was supported by speculations the nation’s exports may benefit from Fed’s stimuli and continuing growth in the US. The greenback almost dropped to 0.9900 against its northern peer in Asian trading hours, compared with Friday's close at 0.9977. The Australian dollar rose yesterday from 1.0426 to 1.0545 against the US dollar on increased demand for higher-yielding currencies, but fell toward 1.0500 in Asian trading hours as China, the major Australia’s trading partner, reported weaker earnings of industrial companies. The measure fell in February by 5.2% from a year earlier.