US Dollar Declines Against Major Currencies Ahead of Bernanke Testimony

Key Overnight Developments

• Japanese Exports Rise Most in 24 Years on Global Stimulus
• US Dollar Down Despite Stock Drop Ahead of Bernanke Testimony



The Euro and the British Pound advanced, adding about 0.2 percent apiece against the US Dollar as the greenback traded lower against the spectrum of its major counterparts ahead of tomorrow’s congressional testimony by Federal Reserve Chairman Bernanke, with the US central bank chief expected to play down last week’s discount rate increase as “normalization” that is not intended to signal the US central bank is speeding up the march to tighten monetary policy. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.



Japan’s Merchandise Trade Balance showed a surplus of 85.2 billion yen in January as exports grew at an annual pace of 40.9 percent, the fastest in at least 24 years, on the back of close to $2 trillion in global fiscal stimulus that has boosted demand for Japanese cars and electronics. Shipments to Asia led the increase, rising 68.1 percent. Also of note, cross-border sales to the US added 24.2 percent, marking the first increase in the annual growth rate in over two years. Exports have been the primary engine of growth for the world’s second-largest economy as a crippled labor market continues to bear down on private consumption. Most worryingly, this does not seem to be the recipe for sustainable growth considering the flow of stimulus cash will invariably dry up, an outcome that is likely to materialize sooner rather than later considering the widespread worries about public deficits that have taken root over recent months.


Euro Session: What to Expect



The final revision of fourth-quarter German Gross Domestic Product figures headline the economic calendar in European hours, with expectations calling for the outcome to confirm that growth in the Euro Zone’s largest economy stalled in the three months through December 2009. Traders will be looking past the headline figure however, scouring the details of the report to gauge for signs of sustainable recovery amid increasingly fading effects of global stimulus measures. The outlook does not look encouraging: domestic demand is expected to have declined -0.6 percent, with capital investment dropping -1.3 percent after rising in three months to September while consumption declines -0.8 percent, marking the second consecutive quarter of losses. Exports have been the standout source of strength over recent months, but this too is expected to print softer with a gain of 1.9 percent in the fourth quarter after adding 3.4 percent – the most in three years – in the preceding period.

On balance, the German GDP outcome may put a spotlight on economists’ expectations calling economic growth the Euro Zone will underperform most major economies through 2011 (according to a survey conducted by Bloomberg), hinting that the European Central Bank will keep interest rates at record lows for comparatively longer than its major counterparts and weighing on the Euro. Indeed, US GDP growth is expected to outpace that of Europe by an average of 1.65 percentage points over the next two years, an outcome second only to Australia in the G10, which may help contain EURUSD upside after Ben Bernanke’s testimony that set to begin late into the session.

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