WORLD FOREX: Dollar's Rally Loses Steam After Bernanke Speech
By Fabio Alves
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar lost ground on the euro Monday in New York, erasing its overnight gains, after the head of the Federal Reserve signaled a steady course for U.S. monetary policy.
The most notable aspect of Fed Chairman Ben Bernanke's speech is that it makes a status quo case after the better-than-expected U.S. November jobs data on Friday. Improvement in that data fueled optimism about the Fed raising interest rates sooner than once thought and the dollar rallied furiously in response.
The 2010 jobless rate is likely to fall "at a lower rate than we'd like," Bernanke said in the prepared text of a speech given after noon at the Economic Club of Washington.
"Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining," Bernanke said.
In early afternoon trading in New York, the euro was at $1.4861 from $1.4847 late Friday, according to EBS via CQG. The dollar was at Y89.37 from Y90.50, while the euro was at Y132.83 from Y134.29. The U.K. pound was at $1.6474 from $1.6448. The dollar was at CHF1.0171 from CHF1.0186.
The Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 75.604 from 75.788.
"The fact that Friday's upside surprise to November's jobs data has not translated into any perceivable upgrade in the Fed's economic or inflation outlook, suggests that the timeline for excessively low lending rates for an extended period of time has not changed," Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington, wrote in a note to clients.
"Consequently, the greenback remains vulnerable to selling pressure, especially against its higher yielding and riskier counterparts," he said.
The dollar had rallied during Asian and European trading, climbing to a one-month high against the common currency, on bets better-than-expected November non-farm payroll data released Friday could prompt the Fed to lift rates sooner than previously thought.
It's the overnight extension of Friday's rally versus the euro that has evaporated during New York trading. Compared with levels prior to the release of the November jobs report, the dollar remains sharply higher.
In essence, Bernanke said Monday that the U.S. economy should continue its recovery next year, but a weak labor market and tight lending should leave the economy growing at a moderate pace.
Once the recovery is strong enough, Bernanke said, the U.S. central bank will be ready to unwind the massive stimulus pumped into the economy to avoid inflation. He illustrated a wide range of options available to the Fed to implement its exit strategy.
The Fed has kept interest rates at near-zero to help pull the U.S. economy from its worst recession since World War II. Investors have focused on the language in Fed statements following recent rate-setting meetings, particularly its remarks that interest rates would remain low for an "extended period," to gauge when rates may be lifted again.
Ultra-low U.S. interest rates have weighed on the dollar, as investors use cheap dollars to fund bets in riskier assets, such as the euro and other higher-yielding currencies.
By Fabio Alves
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar lost ground on the euro Monday in New York, erasing its overnight gains, after the head of the Federal Reserve signaled a steady course for U.S. monetary policy.
The most notable aspect of Fed Chairman Ben Bernanke's speech is that it makes a status quo case after the better-than-expected U.S. November jobs data on Friday. Improvement in that data fueled optimism about the Fed raising interest rates sooner than once thought and the dollar rallied furiously in response.
The 2010 jobless rate is likely to fall "at a lower rate than we'd like," Bernanke said in the prepared text of a speech given after noon at the Economic Club of Washington.
"Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining," Bernanke said.
In early afternoon trading in New York, the euro was at $1.4861 from $1.4847 late Friday, according to EBS via CQG. The dollar was at Y89.37 from Y90.50, while the euro was at Y132.83 from Y134.29. The U.K. pound was at $1.6474 from $1.6448. The dollar was at CHF1.0171 from CHF1.0186.
The Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 75.604 from 75.788.
"The fact that Friday's upside surprise to November's jobs data has not translated into any perceivable upgrade in the Fed's economic or inflation outlook, suggests that the timeline for excessively low lending rates for an extended period of time has not changed," Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington, wrote in a note to clients.
"Consequently, the greenback remains vulnerable to selling pressure, especially against its higher yielding and riskier counterparts," he said.
The dollar had rallied during Asian and European trading, climbing to a one-month high against the common currency, on bets better-than-expected November non-farm payroll data released Friday could prompt the Fed to lift rates sooner than previously thought.
It's the overnight extension of Friday's rally versus the euro that has evaporated during New York trading. Compared with levels prior to the release of the November jobs report, the dollar remains sharply higher.
In essence, Bernanke said Monday that the U.S. economy should continue its recovery next year, but a weak labor market and tight lending should leave the economy growing at a moderate pace.
Once the recovery is strong enough, Bernanke said, the U.S. central bank will be ready to unwind the massive stimulus pumped into the economy to avoid inflation. He illustrated a wide range of options available to the Fed to implement its exit strategy.
The Fed has kept interest rates at near-zero to help pull the U.S. economy from its worst recession since World War II. Investors have focused on the language in Fed statements following recent rate-setting meetings, particularly its remarks that interest rates would remain low for an "extended period," to gauge when rates may be lifted again.
Ultra-low U.S. interest rates have weighed on the dollar, as investors use cheap dollars to fund bets in riskier assets, such as the euro and other higher-yielding currencies.
