The US dollar comes off its 3 year high

The US dollar remains centre-stage in the markets following the publication of the minutes of the latest Federal Reserve Open Market (FOMC) committee report.

The minutes show a divided committee and together with some dovish comments from Federal Reserve Chairman Ben Bernanke sharply reversed the fortunes of the dollar yesterday after it had reached a three year high on Wednesday.

Bernanke said that short-term interest rates in the US wouldn't be increased in the near future and that the US economy needed continued monetary stimulus until there were greater signs of improvement in the labour market.

Bernanke’s comments came as a welcome ‘fillip’ to world stock markets which enjoyed a strong day yesterday but the poor employment data reversed risk sentiment and saw heavy falls for the high yielding commodity based currencies like the Australian and New Zealand dollars and South African Rand.

Yesterday saw the release of the latest employment data from the US which disappointed the markets. The US Labor Department reported that claims for unemployment benefits in the United States unexpectedly rose by 16,000 to a total of 360,000 for the week ended 6 July, well above the 340,000 figure estimated by the majority of analysts.

Meanwhile, in the euro zone, European Central Bank (ECB) policymaker Jens Weidmann suggested yesterday that the ECB could raise interest rates if inflationary pressures emerge in the future stating that the ECB has not "tied itself to the mast" with its use of forward guidance on keeping interest rates at their historic low level.

In its last policy statement published last week, the ECB said it would keep euro zone interest rates at low levels for an “extended period” without specifying a time frame.

Weidmann also stated that the ECB's monetary policy stance was conditional on economic developments in the region.