The dollar weakened sharply yesterday after Fed Chairman, Ben Bernanke, in his testimony before the House Financial Services Committee said the Fed is ready to ease monetary policy further if the economy weakens and inflation moves lower. The currency then dropped further after Moody’s put US debt under review for possible downgrade, warning that the US could loose its AAA rating if the authorities fail to raise the country’s debt ceiling and the government misses debt payments. The dollar selling, however, has run out of steam and the currency has pulled back from its lows overnight.

US issues remain to the forefront today with Bernanke back at Congress, this time the Senate Banking Committee, and with several economic releases, notably June retail sales and PPI plus also the weekly jobless numbers. Meanwhile, euro zone debt concerns remain the main issue for the single currency. However, the spotlight is temporarily off the euro.

With the yen a major beneficiary of risk aversion, the Japanese Finance Minister warned that the currency’s rise does not reflect fundamentals. After some volatile trading by the currency and a brief sharp spike lower there has been some speculation the BoJ may have been checking rates.

The euro-dollar cross trade remains a major factor for sterling with the UK currency rallying strongly against the under pressure dollar. Sterling, though, had weakened somewhat against the euro in yesterday’s morning trade pressurised by the release of UK labour market data showing a large increase in the number claiming unemployment benefit.