Article by AlgosysFx Forex Trading Solutions
The US dollar is believed to continue losing ground alongside its fellow safe haven the Swiss franc today after Federal Reserve Chairman Ben Bernanke ignited hopes for further stimuli amid a deteriorating global economic backdrop. Manufacturing reports from China, the world’s second largest economy, underscore the challenges facing the global economy as demand continues to cool.
Two complementary reports have shown that weakening new orders have taken their toll on China’s vast factory sector, an ominous sign that the Chinese economy could weaken further in the third quarter. The HSBC China Manufacturing PMI fell to 47.6 points in August, its lowest reading since March 2009, down from 49.3 points in July. Over the weekend, the National Bureau of Statistics reported that China’s official PMI dropped to 49.2 points in August, the first time the reading fell below 50 since November 2011. The HSBC new orders sub-index dipped to its weakest reading since March 2009 as demand, particularly from the embattled Euro Zone, continues to fade.
Meanwhile, in a highly-awaited speech last Friday, Fed Chairman Ben Bernanke made the case for additional measures to spur the US economy as unemployment remains above 8 percent. Bernanke noted that the unemployment rate has seen no net improvement since January, forcing him to forecast that unless the economy begins to grow more quickly, the rate is likely to remain far above levels consistent with maximum employment for some time. As such, he said that “nontraditional policies” like a new round of bond purchases remains an option, repeating the Federal Open Market Committee’s statement that the central bank stands ready to provide additional policy accommodation as needed to stimulate growth. In its latest meeting last August 1, the Fed was seemingly moving toward additional action with many members saying more stimulus will be needed soon unless the recovery shows signs of sustainable strengthening. Bernanke’s reiteration of such intentions then raises the stakes for the Fed’s meeting next week, which could provide a venue for the central bank to launch a third round of quantitative easing, debilitating the Greenback in turn. With further Fed action seemingly in the cards, the US dollar is seen to weaken against the Swiss franc today, warranting a short position.
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