Money and Metals

Reuters reports on the new Fed chairman. "The dollar was higher midsession on Wednesday, boosted as new Federal Reserve Chairman Bernanke signaled further U.S. interest rate increases to contain inflation pressures in a relatively strong economy. The dollar had fallen earlier in the day after U.S. net capital inflows for December were reported lower than expected at $65.7 billion which was not sufficient to cover the month's trade deficit."

"'The initial reaction to Bernanke was positive for the dollar and then the market tried to fade that rally out,' said Shaun Osborne, chief currency strategist at Scotia Capital. 'His speech was hawkish in the sense that there would be more interest rate increases. But again, there's something for everybody in his speech, including dollar bears,' Osborne added."

"By midday, the euro was down 0.2 percent against the dollar from late Tuesday at $1.1886. The dollar rose 0.3 percent against the yen to 117.82 yen. Against the Swiss franc, the dollar was up 0.2 percent at 1.3107 francs."

"In his first congressional testimony before the U.S. House Financial Services Committee, Bernanke said the U.S. economy was running near capacity and warned that it faced heightened inflation. But high energy prices and the possibility of a slowdown in the U.S. housing market after a protracted boom also posed potential risks, Bernanke said."

"The dollar initially rose in reaction to Bernanke's inflation warning and then shed its gains as some analysts said Bernanke's remarks were less hawkish than initially thought. 'My feeling is this is slightly less hawkish than what people were expecting. He seems very even-handed,' said Jason Bonanca, senior foreign exchange strategist at Credit Suisse."

"Currency investors all week have been bracing for a U.S. interest rate-supportive testimony from Bernanke. Some analysts were even speculating the fed funds rate could go above 5 percent, especially in the wake of Tuesday's blockbuster U.S. retail sales report for January."

"Earlier in the session, the dollar fell after U.S. net capital inflows for December came in much lower than expected and not sufficient to cover the month's trade deficit of $65.7 billion. Net capital flows into U.S. assets were $56.6 billion, far below market expectations of $82.3 billion and November's upwardly revised $91.6 billion. 'Stepped-up U.S. appetite for foreign securities and less foreign appetite for U.S. Treasuries have come together to make this a weak number,' said Richard Franulovich, senior currency strategist at Westpac Banking Corp. 'This is dollar negative..since all the positive news on the dollar has already been discounted,' he added."

"Foreign net purchases of U.S. Treasuries slumped to $18.28 billion in December from a revised record of $54.55 billion in November. It was the smallest net purchase of Treasuries since the $16.54 billion posted in June 2005. Lower inflows mean the United States will have a harder time financing its huge trade deficit, which was a factor behind the dollar's three-year decline through end-2004."