Bloomberg News

Dollar Falls as Bernanke Says Economy Remains in Need of Boost

June 07, 2011

June 7 (Bloomberg) -- The dollar fell against most its major counterparts as Federal Reserve Chairman Ben S. Bernanke said the central bank should maintain record monetary stimulus to boost a “frustratingly slow” economic recovery.

The yen reached the strongest level against the greenback in a month as Bernanke spoke to bankers in Atlanta. The euro remained at a four-week high against the U.S. and Japanese currencies as investors speculated the European Central Bank will signal further interest rate increases on June 9 while the Fed and Bank of Japan keep lending rates at record lows.

“He won’t say it outright, but he’s saying that there are some changes that the Fed is looking at and the economy is not totally out of the water yet,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo, New York. “The dollar is sitting idle right now waiting for more information about the economy.”

IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six trading partners, fell 0.6 percent to 73.521 at 5:01 p.m. in New York, from 73.989. It touched 73.506, the lowest since May 5.

Euro, Yen

The euro advanced 0.8 percent to $1.4691 and reached $1.4697, the highest level since May 5. The single currency climbed 0.8 percent to 117.67 yen. It touched 117.90, the strongest in a month. The Japanese currency traded at 80.09 per dollar after touching 79.98, the strongest since June 6.

U.S. stocks erased gains, falling for the fifth consecutive session. The Standard & Poor’s 500 Index fell 0.1 percent after earlier gaining 0.8 percent.

Bernanke and his fellow policy makers plan this month to complete a $600 billion bond purchase program, and they’re discussing the tools they’d use to withdraw stimulus, according to minutes of their meeting in April. The Fed’s target rate for overnight lending between banks has been held at zero to 0.25 percent since December 2008.

Investors expect the ECB to increase interest rates by 81 basis points in the next 12 months, versus 18 basis points for the Fed and three basis points for the Bank of Japan, according to Credit Suisse Group AG indexes based on swaps.

“The ECB is likely to hint towards a rate hike in July on Thursday by using the verbal cue ‘strong vigilance,’” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. “Economic fundamentals right now show no reason to be long dollars.” A long position is a bet that an assets will increase in value.

Trichet Accepts

ECB President Jean-Claude Trichet yesterday gave his first signal that he endorses encouraging investors to buy new Greek bonds to replace maturing securities, potentially making the debt situation more sustainable.

A debt rollover is being considered as an alternative means of easing Greece’s funding squeeze, two officials familiar with the matter said last week on condition of anonymity. Investors may be given preferred status, higher coupon payments or collateral as incentives to roll over the holdings when they mature, two separate officials, who declined to be identified because the talks are in progress, said last week.

The euro has strengthened 1.5 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, underpinned by signs of recovery in Europe.

Yen Status

The yen fell against 11 of 16 most-traded counterparts after being the top performer yesterday and touching a one-month high against the dollar.

Japan’s Finance Minister Yoshihiko Noda said in Tokyo today he’s monitoring the yen’s appreciation while conceding that the market’s view on the U.S. economy was likely behind its moves. It was the first time in a month Noda announced he’s watching the markets, a comment that Japanese officials have made in the past as a preliminary signal they may intervene in the currency market.

“If Japanese stocks suddenly collapse the possibility of joint intervention will be increased but the current comment from the Finance Minister seems to be just a bluff,” said Mamoru Arai, a senior currency trader at Mizuho Financial Group Inc. in New York. “We have lots of Japanese customers put in buy orders under 80, so the market does not want to try the downside now.”

The Swiss franc weakened against all 16 of its most-traded counterparts as data showed consumer prices were steady last month, damping speculation that the nation’s central bank will raise borrowing costs.

Swiss Inflation

Consumer-price inflation in May was unchanged from a month earlier, the Federal Statistics Office in Neuchatel said today. Prices rose 0.4 percent from a year earlier. Economists’ median estimate was for a monthly decline of 0.1 percent.

The franc weakened 0.2 percent to 83.63 centimes from 83.46 yesterday.

South Africa’s rand was the best performer against the dollar, rising 1.2 percent to 6.7107, after reports showed the central bank’s foreign currency and gold reserves fell. The rand has gained 15.5 percent against the dollar in the past year.

“The numbers suggest that after a period of aggressive intervention, the authorities are doing less to combat rand strength,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, wrote to clients. “The bottom line is that the authorities can’t do much about the currency, even if they wanted to.”

--With assistance from Robert Brand in Cape Town and Keith Jenkins in London. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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