The U.S. dollar is trading higher against all of the major currencies this morning despite the lack of U.S. data. Weaker inflation in the U.K. and Germany kept pressure on the EUR and GBP while Japanese Finance Minister Amari’s retraction of Sunday’s comment that “the correction of the strong yen is largely completed” renewed the rally in USD/JPY. Overnight, Amari indicated that he can’t say when the correction from a strong yen will end. We suspect that Amari was pressured by his colleagues in other parts of the government to backpedal on his comments because a) they don’t share his views and b) they want avoid a deeper correction in the Yen.

After last week’s big moves, most of the major currency pairs have been consolidating ahead of key events on Wednesday and Thursday. Tomorrow, Bernanke will be testifying before the Joint Economic Committee and his bias on monetary policy could affect how the dollar trades for the next few weeks. On that same day, the FOMC minutes will also be released – we expect more caution but the minutes should have less impact on the dollar than Bernanke’s speech because job growth increased since the last Fed meeting. Bernanke’s views will give us a good sense of whether the market’s expectations for tapering QE are overblown.

In the meantime, Fed Presidents Bullard and Dudley are speaking later today. These 2 FOMC voters are generally on completely opposite sides of the dove hawk scale. Dudley is one of the most dovish members of the central bank while Bullard is one of the most hawkish. However Bullard’s recent views have been conflicting – although he has proposed the Fed alter purchases by $10-15B per month, he also said last month that a further decline in inflation could warrant additional stimulus. Dudley also supports the idea of adjusting purchases but did not indicate whether that was to reduce or increase bond buying – most likely it’s the latter. Bullard speaks first at 11:30am ET and the topic is “Monetary Policy in a Low Rate Environment.” Dudley speaks at 1pm ET on the Challenges that Japan and the U.S. have in a zero interest rate environment. With topics as high profile as these, it may be difficult to having some impact on the dollar by setting expectations for the Fed Chairman’s speech on Wednesday.

Keep an eye on the headlines and the performance of the equity and bond markets as they will determine how currencies flow today.

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