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Bernanke Acknowledges Employment Improvement – Dollar Rises

The Chairman of the Federal Reserve, Ben Bernanke, gave an interesting statement and said that “Fall in unemployment is “more rapid” than expected but the job market remains “far from normal”.

This is a significant change from his previous testimony. It helps the US dollar make gains as the chances for QE in March are lower once again.

EUR/USD fell to around 1.34. USD/JPY bounced off 80.50.

The Federal Reserve has a dual mandate of full employment and price stability. So regarding employment, Bernanke changed his stance last time, when he said that the recent employment numbers don’t reflect the real state of the job market.

What about inflation?  Ben Bernanke did mention trouble in the euro-zone as a risk factor. In addition, he said that oil prices are expected to push inflation up only temporarily, and that inflation will likely stay subdued.

Fear of deflation was the official driver of QE2, announced in November 2010. Higher inflation lessens the chances of QE3.

This is especially relevant as higher oil weighs on consumers. QE3 could be counterproductive in the context of higher oil oil prices.

Earlier in the day, the second LTRO of the ECB resulted in almost 530 billion euros, and sent the balance sheet of the ECB above that of the Federal Reserve.

Earlier, US GDP was revised to the upside, from 2.8% to 3%. In addition, the Chicago PMI exceeded expectations by rising to 64 points. Apart from the  disappointing  drop in durable goods orders, US indicators continue pointing to improvement.

Update: EUR/USD stopped again at 1.3388, similar to a low seen yesterday. For more on the pair, see the euro to dollar forecast.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.