🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

FOREX-Dollar rebounds broadly as market digests Bernanke

Published 11/17/2009, 05:57 AM
Updated 11/17/2009, 06:00 AM

* Dollar recovers from 15-month low as mkt digests Bernanke

* Euro once again unable to hold above $1.50

* China's Hu makes no mention of yuan after Obama meeting

(Recasts, updates prices, adds comment and quote)

By Jamie McGeever

LONDON, Nov 17 (Reuters) - The dollar rebounded on Tuesday from Monday's 15-month lows after Federal Reserve Chairman Ben Bernanke made rare comments about the dollar, encouraging traders to trim longer-term bets against the currency.

Bernanke surprised investors on Monday when he said the central bank was "attentive to implications of changes in the value of the dollar", although he reiterated that interest rates would remain exceptionally low for an "extended period".

Some interpreted his remarks on the dollar, which is usually the purview of Treasury, as a sign the Fed is worried further depreciation could stoke inflation.

The euro briefly popped above $1.50 but was once again unable to hold above that level, where large options-related activity is also providing tough resistance, traders said.

European Central Bank President Jean-Claude Trichet also spoke on currencies on Tuesday, reiterating his oft-repeated views that a strong dollar is in the U.S. interest and that the euro was never intended to be a reserve currency..

"He (Bernanke) was tying to emphasise to the market what Fed thinking is going into the last few months of the asset purchase scheme. They have to talk well ahead to give no shocks to the market, and that's what Bernanke was trying to do," said Peter Frank, senior currency strategist at Societe Generale in London.

Frank said the dollar remained in a longer-term downtrend but said Bernanke's remarks were probably aimed more at "smoothing" its decline than reversing it, and that traders are "a little uncomfortable" being long of euros above $1.50.

At 1035 GMT the dollar index was up a third of a percent on the day at 75.17, after striking a 15-month low of 74.679 on Monday.

The euro fell 0.4 percent to $1.4910, off more than a cent from above $1.5015 struck on Monday, weighed down early on by profit booking and options-related selling around $1.50.

It was in the middle of the $1.48-$1.51 range which traders say marks a large "double-no-touch" options structure that rolls off on Friday.

The dollar was unchanged against the yen at 89.05 yen, recovering from 88.74 yen earlier in the day, its lowest in just over a month.

FED RHETORIC

The dollar rose more sharply against so-called "commodity currencies" like the Australian and Canadian dollars, gaining 1 percent against both as oil, metals, and equity prices fell across the board.

Bernanke's comments on Monday came as U.S. President Barack Obama was in China, although few expect the visit to result in any near-term changes in Beijing's foreign exchange policy.

Chinese President Hu Jintao made no mention of the yuan after meeting Obama, and the U.S. leader only said he was pleased with China's commitment on moving towards more market-oriented exchange rates.

Richard Fisher, president of the Dallas Fed, also said on Monday the dollar's decline so far has not been disorderly although the commitment to keep rates low for an extended period could create the potential for carry trades.

And Fed Vice Chairman Donald Kohn said the low interest rate policy was meant to encourage investors to move into riskier assets and that there are no signs yet of an asset bubble building up in the United States.

"It's very unusual for the Fed to even comment on the dollar, so in that respect the market was caught by surprise," said Johan Javeus, strategist at SEB in Stockholm.

But for the dollar to reverse its long-term downtrend, China needed to take greater steps toward a more flexible currency regime, or the Fed had to signal rate hikes are imminent.

"Neither of those prerequisites have been fulfilled, so the controlled, grinding lower of the dollar will continue," Javeus said.

Sterling was well supported after UK inflation figures came in above forecasts, and on an Italian press report that Italian chocolate maker Ferrero might be considering an offer with friendly investors for an alliance with Britain's Cadbury.

The euro was last down 0.3 percent on the day at 88.65 pence .

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.