Bloomberg News

Dollar Gains on Bernanke Inflation Comments; Kiwi Surges on GDP

July 14, 2011

July 14 (Bloomberg) -- The dollar gained against the majority of its most-traded counterparts after Federal Reserve Chairman Ben S. Bernanke told Congress inflation has moved higher, boosting speculation the central bank won’t take further steps to support the U.S. economy.

The greenback erased losses against the euro after Bernanke said inflation is “higher” and “closer” to the central bank’s informal target than was the case in August 2010. Gold reached records in London and New York as investors sought reprieve from volatility. New Zealand’s dollar rose to a record against the dollar after a larger-than-forecast gain in gross domestic product.

“Once we saw Bernanke take a step back from a third round of quantitative easing, stocks gave up all their gains and the dollar recovered,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “It means we’d need to see a couple more months of erosion in U.S. data and that the Fed’s not going to rush into additional monetary easing.”

The dollar rose 0.2 percent against the yen to 79.14 at 5 p.m. in New York, from 78.98. It rose 0.2 percent to $1.4143 from $1.4167 versus the euro after earlier falling as much as 0.8 percent. The 17-nation euro was little changed against the Japanese currency at 111.92, from 111.86.

The Standard & Poor’s 500 Index fell 0.7 percent after earlier gaining as much as 0.7 percent.

Gold Demand

Gold rose to a record as the VIX, as the Chicago Board Options Exchange Volatility Index is known, advanced for the fourth day, rising 1.8 percent. Gold futures for August delivery rose 0.2 percent to $1,587.20 an ounce on the Comex in New York. Earlier, the price reached a record $1,594.90.

The Swiss franc rose as much as 1.2 percent to a record 80.83 centimes per dollar, before trading 0.2 percent higher at 81.60. It surged to a record 1.14945 against the euro, before trading at 1.15429.

“When you can’t go into the dollar or euro, you go to the Swiss franc and gold and that’s why you’re seeing record highs on this near daily basis,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “If you listen to Bernanke today, there isn’t really any near-term chance to see a QE3 and that has helped the dollar.”

Kiwi, Rand

New Zealand’s currency rose 0.6 percent to 84.21 U.S. cents after reaching 85.07 U.S. cents, the strongest since it was freely floated in 1985.

New Zealand’s economy expanded 0.8 percent in the three months ended March 31 from the previous quarter, the government statistics agency said in Wellington. The central bank forecast growth of 0.3 percent.

“New Zealand is wildly outperforming on stronger than expected GDP after all the natural disasters there,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto.

South Africa’s rand fell to its lowest level in more than a week against the euro and declined versus the dollar on concern strikes by steel, engineering and energy workers will slow growth in Africa’s biggest economy.

The rand slipped as much as 1.6 percent to 9.7801 per euro, the weakest level since July 5. South Africa’s currency retreated 0.6 percent against the dollar to 6.8372.

Bernanke testified before the Senate Banking Committee today, after appearing before the House Financial Services Committee yesterday. The Fed is prepared to take additional action if the economy appears to be in danger of stalling, he said yesterday.

U.S. retailers stagnated in June, increasing 0.1 percent, according to the Commerce Department in Washington today.

--Editors: Paul Cox, Greg Storey

To contact the reporters 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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