Mr. Bernanke said that the Fed and Treasury were carefully monitoring foreign exchange markets and assessing the risks associated with a weaker dollar. He noted that recent 'challenges' to the US economy had generated some downward pressure on the dollar, resulting in an 'unwelcome' rise in import prices and consumer inflation.

The comments are interesting in the sense that the Fed rarely comments directly on the dollar. The gist of the comments themselves was not particularly enlightening, so I imagine the dollar gains generated will be short-lived. That means that gold is likely to rebound as well.

The dollar has been consolidating off its lows in recent weeks, underpinned by a growing perception that the Fed will raise rates by year-end in an effort to combat inflation. However, Bernanke also reiterated the Fed's commitment to its 'dual mandate" of price stability and maximum sustainable employment.

Given the recent uptick in worries about the banking sector, one could just as easily assume the Fed will hold steady on rates through year-end in order to sustain at least minimal economic expansion.

In fact, if the banking sector does take a turn for the worse and drags the rest of the stock market lower as it did on Monday, one might expect increased talk about additional rate cuts.

Troubling news from both the UK and US banking sector sent stocks reeling on Monday. S&P downgraded a number of major US investment banks and Wachovia announced the departure of their CEO.

Bradford & Bingsley, one of the UK's largest lenders warned on profits and confirmed plans for a rights issue. Credit market losses have also forced Lehman Brothers to consider issuing new shares.

Fed fund futures are presently pricing in a 25bp rate hike by year-end, but the Jan-09 contract is actually a basis point higher on the day after Bernanke's comments.

The dollar index has regained the 73.00 level, but the range high from early-May at 73.89 remains well protected at this point.

EUR-USD has broken below the 100-day moving average and we'll be watching this rate on a close basis. Good chart support at 1.5400/1.5396 protects the range low at 1.5286 (08-May).

Last week's low in gold at 870.95 remains well protected at this point and provides a solid intervening barrier ahead of the 845.50 low from early-May. A climb back above 885.00/80 would ease intraday pressure on the downside, favoring a return to pre-Bernanke levels just below 900.00.

Gold Market Movers:

US factory orders for Apr up 1.1%, well above expectations, versus a revised figure of 1.5% in Mar.

Eurozone PPI for Apr +0.8% m/m, 6.1% y/y.

Eurozone Q1 GDP revised upward to 0.8%

RBA leaves cash rate unchanged at 7.25%

Bernanke signals discomfort with weak dollar

Bank stocks slide as S&P cuts ratings on 3 Wall St. firms

Losses push Lehman to weigh raising new capital

Too soon to relax, Atlanta Fed's Lockhart says