NEWS / Foreign Exchange

Trading in currency markets generally remains rather quiet

Trading in currency markets generally remains rather quiet, with the dollar presently a bit stronger versus most major currencies than it was yesterday at this time. The major exception to that statement is the Japanese yen, which has strengthened somewhat versus most currencies. Following yesterday's modest losses on Wall Street, most stock markets in Asia closed lower last night and European bourses generally are a tad lower this morning. Perhaps the uptick in risk aversion that is evident in the modest decline in equity markets over the past 24 hours is leading to speculation that yen carry trades will be unwound.

Speaking of the stock market, data on durable goods orders in February will print this morning at 8:30 EDT. Recall that a month ago the Dow Jones Industrial Average plunged more than 400 points after data on durable goods orders in January printed much weaker than most investors had expected. (The 9% decline in the Chinese stock market that day and rising concerns about the subprime mortgage market also added to the selling pressure on Wall Street.) The market consensus forecast anticipates that durable goods orders in February retraced some of their sharp decline from the previous month. A weaker-than-expected outturn, however, would reinforce concerns that the downturn in the housing market is spreading to other sectors, which likely would lead to near-term dollar depreciation. That said, stronger-than-expected data should boost the greenback.

The other highlight of the day will be Fed Chairman Bernanke's testimony to the Joint Economic Committee in Congress about the outlook for the U.S. economy. Bernanke's message will not likely deviate much from the statement that the Fed released at the conclusion of last week's FOMC meeting. However, Bernanke can move financial markets with just a few words, and investors will be on guard for any clues about the future stance of monetary policy that Bernanke wishes to impart.