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Forex outlook:
The dollar fell against most major currencies on Wednesday and stayed within sight of a record low against the euro after Federal Reserve Chairman Ben Bernanke said U.S. housing market woes could worsen. In testimony before Congress, Bernanke reiterated that inflation is the Fed's top concern but said weakness in the housing sector would likely crimp economic growth in coming quarters. His remarks touched a nerve with dealers already reeling from a crisis tied to defaults on risky mortgage debt, leaving little reason to buy the greenback. Bernanke's "words are clearly dollar bearish," said Kathy Lien, chief strategist with Forex Capital Markets in New York." The Fed is not ready to lower rates, but the fact that Bernanke notched down his hawkish tone is a clear indication that even Fed officials are becoming worried," she said. In prepared remarks, Bernanke said: "Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities, problems that likely will get worse before they get better." The Federal Reserve also has slashed its forecasts for U.S. economic growth this year and in 2008. On Thursday, markets will scour minutes from the Fed's last policy meeting for any signs of changes to the bank's inflation and economic outlook. For now, though, most expect the central bank to hold U.S. Interest rates steady for some time to come. That view led to dollar selling against high-yielding currencies such as sterling, which would benefit from an expected Bank of England rate hike in September. The European Central Bank is also expected to lift interest rates in September.
The sterling continues to ignore severe technical overextension and rallying to fresh 26 plus years highs above the critical psychological level by 2.0500 to 2.0550 thus far. Price action in the NY session has been strong with the pair trading in a 2.0460-2.0550 range and setting to close near the highs. Cable rallied to the daily highs, before retreating on the back of a less hawkish release of the BOE MPC minutes revealing a more significant gap than expected between the hawks and the doves. However Fed Chairman Bernanke"s mitigating concerns on inflation combined with increased trepidation over the state of the US Subprime market sparked a fresh bout of USD selling taking the pair back to current levels right under the daily highs. Today investors are looking ahead; key event risk for GBP/USD that comes in the form of the UK Retails Sales release due at 8:30 GMT, with a weak number possibly acting as the catalyst for a much needed correction.
The Kiwi opened yesterday around 0.7905 in NY and traded steadily higher, underpinned by ongoing subprime woes that saw US bond yields fall. US data had little impact with CPI as expected and new housing starts better-than-expected but offset by a fall in building approvals. Fed"s Bernanke seemed more downbeat on the subprime issue, adding to the focus on that sector that kept the USD offered. Two-way interest was seen near the highs of 0.7947 with model funds selling but real money buying on the rate hike expectations to 8.25%. Stops lie above 0.7950. Some traders are cautious about the NZD/USD now with fears the USD sell- off is overdone and is due for a correction. However, NZD/USD bulls still see buying interest ahead of the expected rate hike next week, targeting gains to 0.8000 in coming sessions.
Gold:U.S. gold futures rallied to finish more than 1 percent higher on Wednesday, boosted by a combination of the steadily weakening dollar, firmer oil prices and renewed safe-haven bids as jittery investors bought the precious metal on fears about the subprime mortgage sector. "We certainly had a flight to safety today. And for a change, gold did attract some of that demand. A lot of it is related to the subprime issue," said Bill O'Neill, co-founder of commodity consulting firm LOGIC Advisors based in Sonoma, California. People who are concerned about holdings in dollars are diversifying generally into gold.
Crude Oil: U.S. crude futures raise more than $1 after data NEW YORK, U.S. crude oil futures raised more than a dollar on Wednesday, after government inventory data showed gasoline and distillate supplies fell unexpectedly last week, even as crude supplies also dropped and refinery capacity use increased. The U.S. Energy Information Administration said that for the week to July 13, gasoline stocks fell 2.3 million barrels to 203.3 million barrels. Analysts polled by Reuters had forecast a build of 900,000 barrels. Crude stocks fell 500,000 barrels to 352.1 million barrels, more than the forecast 200,000 barrel draw.
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