The U.S. dollar has strengthened and Treasury bond prices have dropped so far in May but testimony from Federal Reserve Chairman Ben Bernanke on Wednesday could set the tone for the rest of the month.
Investors will also get the minutes from the last Fed meeting on Wednesday, so PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP) and iShares 20+ Year Treasury Bond Fund (NYSEArca: TLT) could see action.
The dollar ETF has been climbing in May amid speculation the Fed could soon signal it will taper its bond purchases designed to keep interest rates low and stimulate the economy. Also, Bernanke recently warned about the risks of stretching for yield.
However, St. Louis Fed President James Bullard on Tuesday said there is no case yet for tapering until inflation picks up, WSJ.com reports. “Inflation is pretty low in the U.S.,” Bullard said. “I can’t envision a good case to be made for tapering unless the inflation situation turns around.”
Also Tuesday, Federal Reserve Bank of New York President William Dudley said he’s not sure whether the Fed should boost or shrink its bond purchases due to the uncertain outlook for the economy, according to Bloomberg News.
David Kelly, chief global strategist at JP Morgan Funds, in a note this week said there is little evidence yet that the Fed is veering from its current course on quantitative easing.