Hawkish Bernanke boosts dollar
Ahead of the World Cup, the hot money headed into cash this week – and for currency traders, cash means dollars.
The dollar looked the only currency likely to rise after Ben Bernanke, Federal Reserve chairman, said he‘d tackle inflation by raising US interest rates if necessary. His comments knocked three cents off the value of the pound and clipped the euro’s rise just short of $1.30, a key level in the dollar’s last big slide of January 2005.
Basic economic analysis says the dollar should be falling. America’s famous “twin deficits” still dominate long-term forecasts. Morgan Stanley expects a 10%-15% drop in the dollar by 2008. But Bernanke’s wavering stance on US interest rates has created uncertainty. Fears are growing that central bankers will overreact to inflation. Add the continued sell-off in stocks, especially in Japan, and the dollar has suddenly regained its “safe haven” appeal – for now, at least.
