The Dollar started plunging against a rising Yen last weekend. The Japanese election results have put the Yen on a favorable path. While, Bernanke’s dovish remarks and ambiguity on QE tapering timetable has cast an uncertainty in the currency market that has dragged down the Dollar. 

After Bernanke’s second day of testimony in Congress on Thursday was released the Dollar took a hit. On Friday last week, the Dollar index reacting to Bernanke’s statement declined by 0.3% to reach 82.585. In line with this trend, Dollar also declined against the Yen to shed its gains from a one-week high of 100.86 yen. On Friday, the Dollar had dropped by 0.1% to trade at 100.31 yen after hitting a session low of 99.795 Yen.

Meanwhile, against the Pound the greenback slipped to a two-week low of $1.5280, on last Friday. Starting this week, on Monday, the Dollar continued its downtrend from last week end, as it further declined against the Euro and Japanese Yen. The Dollar fell by 0.1 % to $1.3155 against the Euro. The Dollar further plunged against the Yen with the USD/JPY pair trading at 99.60 Yen, which is far lower than Friday’s rate of 99.92 Yen per Dollar.

The surge in the Japanese Yen has tamped down the Dollar causing its slide for the past few days. The Yen was previously trading lower, as investors were anxious ahead of the Japanese upper house elections on Sunday. But, on Friday, the opinion Polls in Japan showed that the Prime Minister Abe’s ruling party coalition was set for a landslide victory, which came true as predicted, on Sunday. This boosted the Yen to surge ahead dragging down the already uncertain and wavering US Dollar.

Moreover, U.S. Federal Chairman Bernanke’s dovish remarks on the second day of his testimony in front of Congress depressed the market sentiments for US Dollar. Bernanke on the second day of his testimony before the Senate Banking Committee, made a flip-flop statement that central Bank intends to maintain its accommodative monetary policy, with no change in the near future. 

He further stated that the inflation remains below the Fed target, which enables the Fed to maintain its current level of bond-purchase program until there is a significant improvement in the rate of unemployment. His comments also cast serious doubts on the possibility of a QE tapering as early as this September. These factors put a downward pressure on the Dollar that has been gradually declining since last Friday.

As a result of the decline in Dollar, Bullion and precious metals’ prices spiked, on Monday.  Gold surged ahead supported by a declining US Dollar and hit a one month high of $1,317.30 an ounce, its highest since June 20 this year. It later settled down to $1,314.64 an ounce by 0341 GMT.

On the other hand, Crude oil prices too soared high backed by the G20 nations’ pledge for increasing economic growth over austerity measures. The G20 nations account for the 90% of the World economy and their pledge for growth stoked expectations for a rise in demand for Crude oil. This saw the Bren Crude advance on Monday, by 32 cents to $108.39 a barrel by 0501 GMT. While, the US WTI crude oil edged up 37 cents to trade at $108.42 a barrel, after hitting a 16-month high of $109.32 a barrel.

Thus, the rising Yen, coupled with the dovish remarks from Bernanke had pulled down the Dollar. The Dollar had previously rallied up in the middle of last week, due to positive US jobless data. With no new economic data last weekend, Dollar had no good news to drive up its demand. Consequently, this slide in Dollar drove up the Gold and the Crude oil prices.

However, Bernanke has stated that any signs of improvement in the economy may induce the Fed to scale back its asset-purchase, earlier than the end of this year. The Yen’s rally too depends on further monetary policies introduced by the Abe’s government. So, any future positive US economic data would probably drive up the Dollar.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.