CURRENCIES: Dollar Recovers Some Losses On Bernanke But Fades

By Deborah Levine

The dollar briefly recovered some of the session's losses against the euro Monday after Federal Reserve Chairman Ben Bernanke said the central bank is committed to a strong greenback.

Gains were limited, however, as the top U.S. central banker also repeated that the Fed anticipates that "exceptionally low" interest rates are likely to persist for "an extended period" and that considerable challenges remain for the economy.

Though remarks from central bankers about the currency are rare, "Bernanke's comments do not present a significant obstacle to dollar bears," strategists at Brown Brothers Harriman said.

The dollar index (DXY), which tracks the U.S. unit against a basket of foreign currencies, fell about 0.5% to 74.963 in recent trading, after briefly erasing the day's decline, and compared to 75.298 in late New York trading on Friday.

The euro briefly turned negative after Bernanke's dollar remarks but then resumed gains to buy $1.4963, up from $1.4903 late Friday.

Bernanke said the recent weakness in the dollar largely reflects movements in and out of safe havens, but he promised that the Fed would closely monitor developments in the foreign-exchange markets.

"We are attentive to the implications of changes in the value of the dollar," he said, adding that Fed policy would "help ensure that the dollar is strong and a source of global financial stability."

"Consider this verbal intervention by the Obama administration, which is one of the few things that could actually lead to a more significant rally in the U.S. dollar," said Kathy Lien, director of currency research at Global Forex Trading.

Bernanke followed on some policy makers who last week were deemed to sound more dovish and less inclined to step away from the U.S. central bank's monetary policy of ultra-low interest rates.

Analysts had been bracing for any comments from Bernanke about stepping away from that policy, which he didn't touch upon.

"The same risk trades we have been seeing in the markets will continue," including higher stocks and commodities and a sell-off in the dollar, said Andrew Brenner, head of emerging markets at Guggenheim Securities, in an email.

The dollar had been under pressure before Bernanke's speech as U.S. equities advanced and data showed retail sales rose more than economists predicted, suggesting improvement in the U.S. economy and emboldening investors to move toward riskier assets and away from the relative safe-haven status of the greenback.

The U.S. currency had been under pressure before the data, reflecting both stepped-up rhetoric from Chinese officials as well as and better-than-expected Japanese growth data.

U.S. benchmark stock indexes headed broadly higher to start the week. The Down Jones Industrial Average (DJI) rose 1.5% in recent trading.

"As long as the Dow can continue to rally, the euro-dollar appears destined to test new highs for the year above $1.5000 later this week," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon.

U.S. retail sales increased a seasonally adjusted 1.4% in October, led by a rebound in automotive, the Commerce Department said.

"The U.S. economy appears to have not only bottomed but also stabilized, with the U.S. consumer spending again -- albeit at a subdued pace," Woolfolk wrote in emailed comments.

A separate report showed manufacturing activity in the New York Federal Reserve's region expanded at a slower pace this month.

Gold futures soared to a fresh high, as further weakness in the dollar encourages investors to seek the precious metal as a safe-haven alternative.

Gold is traded in dollars, so a weaker dollar makes it cheaper for investors holding other currencies. Therefore, a move in one often fuels an inverse move in the other.

The dollar was also under pressure after the Asia Pacific Economic Cooperation pledged over the weekend to maintain stimulus measures until there is "durable" growth, giving a green light for investors to seek riskier assets than the U.S. currency.

Also, China's chief banking regulator criticized U.S. monetary policy as leading to increased speculation.

As President Barack Obama makes his first official visit to China, officials in Beijing seemingly remain content to keep its currency, the yuan, fixed to the greenback.

"The U.S. dollar is lower against all the majors on Obama's failure to wrest any concessions from Chinese regarding their exchange rate," said T.J. Marta, founder and chief strategist at Marta on the Markets.

The yen, meanwhile, got a lift from better-than-forecast Japanese gross domestic product data.

While volatile as Bernanke spoke, the dollar bought 89.31 yen in recent action, down from 89.72 yen on Friday.

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November 16, 2009 13:31 ET (18:31 GMT)


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