Dollar Sent Lower by Bernanke but Drawing Support from ISMDollar's

sell off resumes in early US session after comments from Bernanke which said that housing market's drag on the economy could persist somewhat longer than expected even though the slump has not spilled over into other parts of the economy yet. He said in his speech "The Housing Market and Subprime Lending" in the International Monetary Conference in South Africa via satellite that tighter standard is now required by investors and creditors will no doubt restrain housing demand in the subprime market and some near-prime borrowers may also be shut out. Regarding inflation, though, Bernanke still believes that risk is to the upside and economy will grow at near trend rate.

Dollar additionally pressured by speculation that the United Arab Emirates may be the next Middle Eastern country to end the dollar peg. Syria and Kuwait had recent announced that they would dump the dollar peg to curb rising import costs and inflation that was pushed up by rising costs of imports from Asia and Europe. However, much stronger than expected ISM non-manufacturing index, which rose to 59.7 in May versus expectation of 55.3, is providing some support to the greenback.

Euro, on the other hand was supported by solid Services PMI in May and IMF's raising of its forecast for the growth in the Eurozone economy from 2.3% in 2007 to around 2.5%. IMF also expects that the expansion will "continue apace" next year. Though, Apr retail sales missed expectation by growing 0.2% mom, 1.6% yoy only.

The Aussie remains firm too and took out this year high of 0.8390, reaching as high as 0.8406 so far, highest since Aug 90. Though RBA is widely expected to keep rate unchanged at 6.25% in the coming Asian session, expectation is still firm on another rate hike, probably in near term. Also, Aussie continues to draw support from carry trade. Q1 GDP will also be closely watched in the coming Asia session too and is expected to grow 1.0% qoq, 2.9% yoy.