U.S. dollar falls vs euro on cautious Bernanke

By Gertrude Chavez-Dreyfuss

NEW YORK (BestGrowthStock) – The dollar slid against the euro on Wednesday after Federal Reserve Chairman Ben Bernanke struck a cautious note on the economy and reiterated that U.S. interest rates will stay low for some time.

In congressional testimony, Bernanke said a moderate U.S. economic recovery is likely to warrant very low interest rates for an “extended period.”

He added that the risk of a renewed contraction was not “negligible,” although the threat has receded in recent months.

Low rates diminish the appeal of U.S. assets, thereby reducing the demand for dollars.

“Far from signaling a looming change in the ‘extended period’ language and even as he expressed confidence in the recovery, Bernanke repeatedly stressed his underlying concerns about the U.S. economy, the U.S. fiscal situation and the ‘significant restraints’ on the pace of recovery,” said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

Watt said the dollar’s tumble was due to Bernanke’s cautious stance.

Investors had earlier sold the dollar after Singapore effectively revalued its dollar currency, which fueled speculation China may also allow its currency to appreciate against the dollar.

Singapore’s move was seen as a mark of confidence in the economic recovery, boosting the appeal of currencies perceived as higher risk, such as the Australian and Canadian dollars [ID:nSGE63B0D6]

“Traders are now thinking that China might at least tinker with the value of their currency as well,” said Carol Hurley, senior market strategist at Lind-Waldock, a futures brokerage house in Chicago.

In late afternoon trading, the euro was up 0.4 percent at $1.3656, hitting session highs at $1.3678.

Hurley said the euro benefited from continued short-covering after bearish bets on the single currency hit record highs a few weeks ago.

Robust U.S. retail sales and strong corporate earnings also boosted risk sentiment, lifting stocks and currencies perceived as benefiting from higher risk appetite such as the Canadian and Australian dollars.

The U.S. dollar eased below parity against the Canadian dollar to an almost two-year low of C$0.9953, according to Reuters data. The greenback last traded at C$0.9990, down 0.2 percent on the day.

The Australian dollar rose 0.7 percent to US$0.9349, breaking through a psychological barrier at US$0.9300 though it failed to top Monday’s five-month peak just below US$0.9400.

The dollar was little changed against the yen at 93.18 yen, off a session low of 92.83.

The euro rose 0.3 percent to 127.27 yen, trading above its 100-day moving average around 127 yen. Resistance was seen at a previous high of 128 yen.

The Fed on Wednesday also released its Beige Book summary of economic conditions, which generally pointed to an economy on a steady path to recovery. While it failed to move the currency market, analysts said this would be a positive for the dollar going forward.

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U.S. dollar falls vs euro on cautious Bernanke