The dollar was little changed this morning as the market braced itself for the testimony of Fed Chairman Ben Bernanke later today. Earlier the dollar had had a shaky start after fears that the economic recovery was stalling sent treasury yields crashing. Bernanke’s testimony will be heavily scrutinized to see if it can shed more light on the idea being touted at the moment that the Fed may be forced to introduce more quantitative easing. At midday GMT the dollar stood at $1.2797 to the euro and ¥86.97 to the yen.

   Meanwhile the euro continued to reverse trend after an unsuccessful Portuguese debt auction. Portugal sold €1.25bn ($1.6bn) in 12-month bills, but the average yield more than doubled from its previous sale and the bid-to-cover ratio was much lower. There were also fears about Friday’s publication of the bank stress test results, particularly after the news that German lender Hypo Real Estate had failed its tests was leaked yesterday. At midday GMT the euro was trading at ¥111.29 to the yen and $1.2797 to the dollar.

   The pound was volatile but in no clear direction after the release of the BOE minutes showed that whilst there had been one dissenter to keeping rates unchanged – Andrew Sentence – who also dissented last month, the board was less optimistic about growth going forward this month with MPC member Posen saying yesterday that "more than 50% likelihood in my estimation the right next move will be to loosen rather than to tighten". The seemingly conflicting views mirrored by a directionless pound. Sterling was trading at $1.5272 midday GMT and £0.8378 to the euro.

   The yen rose against the dollar after deputy governor of the BOJ said the bank had no intention of intervening to stop the rise of the yen above any specific levels. There had been talk earlier in the week that the BOJ might intervene should the dollar/yen pair fell below 85.00 but Yagamuchi contradicted this view. The yen was trading at ¥86.97 to the dollar at midday GMT and ¥132.82 to the pound.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst