Dollar softer as Bernanke affirms low rate outlook

By Anirban Nag

SYDNEY (BestGrowthStock) – The dollar was softer on Thursday, extending the previous day’s losses, as investors trimmed huge long positions in the greenback after the Federal Reserve reiterated interest rates will stay low for a long time.

Fed Reserve Chairman Ben Bernanke told Congress on Wednesday a weak jobs market and low inflation would likely allow the Fed to keep rates low for “an extended period.”

That poured cold water on market expectations that U.S. rates would rise sooner rather than later — a view that got a boost after the Fed raised its discount rate last week.

With U.S. rates likely to stay very low for sometime to come, investors returned to riskier leveraged trades. Demand for stocks (.SPX: ), commodities (.CRB: ) and higher-yielding currencies all got a leg up, after having been sold-off earlier this week.

The dollar index (Read more about the global trade. ) (.DXY: ) was down at 80.764, pulling away from recent 8-month peak of 81.34 struck on Feb 19. Near-term support was seen around 80.08, this week’s low for the index.

The euro bounced, rising $1.3542 from around $1.3532 late in New York on Wednesday, when it gained 0.2 percent. Traders said, with short positions in the euro at record highs, the latest bounce in the single currency had wings.

Still, worries about a possible downgrade of Greece will check gains. Standard and Poor’s said it may cut Greece’s BBB+ rating by one or two notches within a month, citing downside risks to growth that could hinder the country’s deficit-cutting plans.

“The Greek situation remains fluid. So acrimonious discussions between Athens and Brussels could easily result in further near term euro slippage,” Citi said in a note.

But Citi added, with euro net short positions at a record high, any positive news from Greece in the coming weeks could lead to a bounce in the single currency.

The euro has lost over 10 percent since late November as fiscal woes in Greece intensified in the past few months leading to a huge sell-off by investors. It has hovered just above recent nine-month lows of $1.3442 with poor economic reports also weighing down on sentiment.

The dollar was a tad lower at 90.16 yen, but is likely to be supported ahead of the Tokyo fix at 0100 GMT on possible dollar demand from Japanese importers.

The euro held gains on the yen, at 122.06 yen, as did the Australian dollar. The Aussie, at $0.8934, was also supported by speculation that the Reserve Bank of Australia (RBA) will raise rates next week.

That talk got a boost after central bank watcher Terry McCrann said the RBA would “almost certainly” raise rates by 25 basis point to 4 percent.

Markets will now focus on U.S. durable goods data for January and weekly jobless claims, due later in the day, for clues on how the U.S. consumer demand is holding up.

Data on Wednesday showed an unexpected plunge in new U.S. home sales last month. Analysts said the housing figures, combined with a drop in a consumer confidence report on Tuesday, underscored the fragility of the economic recovery in the U.S.

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(Editing by Wayne Cole)

Dollar softer as Bernanke affirms low rate outlook