Thursday ended up being a disappointment for investors who were awaiting word from Fed Chairman Ben Bernanke that they intended to provide additional stimulus to shore up an economic recovery that was in danger of losing its momentum. Chairman Bernanke surprised markets in that he took a decidedly neutral tone which provided markets with little clarity as to the Fed’s future direction. Only the day before Janet Yellen, the Fed Vice Chairman, buoyed investors’ hopes by saying that the FOMC had room for more accommodation given the deteriorating outlook. The only bright spot on the day was the surprise easing by the People’s Bank of China which announced that their benchmark rates would be cut as of today by 0.25%.
Initially finding support from the China news, commodity-linked currencies quickly lost steam after Chairman Bernanke’s testimony, with the EUR/USD falling 0.25% to $1.2526, well off the 2-week high of 1.2626 struck after the China rate cut announcement. The AUD/USD was hit harder still, losing 0.35% to trade at $0.9856; earlier following the China news, it had briefly broken through parity. Meanwhile, the U.S. Dollar Index, a gauge of the greenback’s strength relative to a weighted basket of currencies recovered from a 2-week low to trade at 82.45 .DXY, off Thursday’s low of 81.911 .DXY.