This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Dollar Bears Brunt of Fed Remarks

NEW YORK ( TheStreet) -- The slaughter of the dollar continued through U.S. trading Thursday, as the Federal Reserve and its chairman Ben Bernanke's dovish remarks fuelled the carry trade and momentum trading.

In a carry trade, investors fund the buying of higher yielding currencies after borrowing and selling lower yielding currencies.

The U.S. dollar index was falling 0.3% to $73.13; moderately stronger after the onslaught that occurred in U.S. trading Wednesday afternoon and far eastern European trading overnight. PowerShares DB US Dollar Index Bearish (UDN) was ahead by 0.2% to $29.17.

"I think the U.S. dollar is certainly going to suffer right across the board, except probably against the Japanese yen," said Dean Popplewell, OANDA Corp.'s Chief Currency Strategist. "This is what investors are currently using with the Fed stance and what they perceive to be on hold for the next couple of meetings."

"It's basically open season for a much weaker dollar ... It's certainly promoting the carry and momentum trading strategies that we're seeing at the moment."

The U.S. dollar and yen have officially become funding currencies for high-yielding, commodity-sensitive currencies such as the Australian dollar and New Zealand dollar, or so-called "kiwi." The Australian dollar yield is particularly attractive at 4.75%. Among the G7 currencies, more and more OANDA clients desire the euro, especially given recent hawkish European Central Bank comments.

CurrencyShares Australian Dollar Trust (FXA) added 0.5% to $109.61, while WisdomTree Dreyfus NZ Dollar Fund (BNZ) lost 0.8% to $24.46. CurrencyShares Japanese Yen Trust (FXY) rose 0.6% to $121.10.

The yen continues to stay weak after the G7 group of industrialized nations' coordinated maneuver to stem the yen's appreciation last month and Standard & Poor's downgrade of Japan's long-term rating outlook to negative from stable, due to risks of fiscal deterioration following the massive earthquake that devastated the country.

The OANDA chief currency strategist says the market is targeting, for the medium term, $1.50 for the euro-U.S. dollar currency pair and $1.10 for the Australian dollar-U.S. dollar currency pair. However, Popplewell notes that these currency pairs have so far reached projections much quicker than the expected, which may mean the trades have been overextended; this could lead to a short-lived relief rally for the U.S. dollar, according to the strategist.

Once the euro-U.S. dollar breaks through $1.50, the pair opens its way towards $1.55, especially in light of hawkish ECB rhetoric, he added. CurrencyShares Euro Trust (FXE) was up 0.2% to $147.67.

On Wednesday, Federal Reserve chairman Ben Bernanke held his first press conference after a policy meeting. During the event, Bernanke discussed the outcome of the Federal Open Market Committee's two-day meeting, reiterating an earlier release stating that the FOMC (Federal Open Market Committee) would keep interest rates unchanged at 0% to 0.25% and would complete its plan to buy $600 billion of long-term securities by June, as planned.

While taking questions from the press, Bernanke said the Fed's use of the "extended period" language is dependent on resource slack and expectations for inflation.

"I think most people are not frustrated with what he said," Popplewell remarked. "It was very much as expected. It just gave the market certainty -- the green light to increase their risk tolerance and focus on carry and momentum trading strategies."

>>Search for Highest Dividends by Rate or Yield
More on Earnings
Today's Top Earnings
Earnings Calendar

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

>To follow the writer on Twitter, go to Andrea Tse.

>To submit a news tip, send an email to:
Copyright 2011 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FXA $76.09 0.00%
FXY $90.93 0.00%
FXE $111.84 0.00%
UDN $22.70 0.00%
AAPL $93.74 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs