Bernanke boost is short-lived as dollar resumes slide
Posted: 17 November 2009 0624 hrs

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NEW YORK - Comments supporting a strong dollar from Federal Reserve chief Ben Bernanke gave only a brief boost to the greenback Monday, with traders skeptical that the talk would lead to any action.

The dollar got a temporary lift from Bernanke's remarks but then resumed its move lower against the main currencies, helping gold prices to yet another record high.

The euro was quoted at 1.4972 dollars at 2200 GMT after 1.4911 late Friday in New York.

The dollar was meanwhile fetching 89.05 yen, down from 89.66.

The euro fell as low as 1.4881 dollars after Bernanke's comments, but roared back to over 1.50 dollars before settling back.

Bernanke said the Federal Reserve is striving for a strong dollar in an effort to ensure financial stability.

He said the central bank was closely monitoring exchange rates with the dollar having lost its gains from safe haven flows during the height of the financial crisis.

"We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," the Federal Reserve chairman told the Economic Club of New York.

"Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability."

Analysts said Bernanke's comments were unlikely to help lift the greenback unless they were backed up by action on interest rates.

Andrew Busch at BMO Capital Markets said it was "hardly the type of language we would need to exert a strong pull on the US dollar, but he did mention it."


Busch added: "Unless the Fed stops easing and stops buying mortgages, the US dollar should continue to weaken."

"The forex markets certainly took note of chairman Bernanke's dollar comments," added Vassili Serebriakov, currency strategist at Wells Fargo.

"Yet, in the absence of any notable shift on the policy front we doubt that 'official' jawboning can do much to reverse the current weak dollar trend."

Because of the Fed's near-zero interest rate policy, the dollar is being used by investors for so-called carry trades in which they borrow greenbacks at low rates to invest in higher-yielding assets such as commodities and bonds of other governments. This increases pressure on the dollar.

Earlier, upbeat reports from Japan and the United States encouraged traders to move into currencies -- such as the euro -- seen as riskier than the safe-haven dollar.

A sharp rise in automobile sales pushed up US retail spending by 1.4 percent in October, government data showed Monday in a positive sign for an economy heavily dependent on consumer activity.

"The report has reinforced investor confidence in the global economic recovery helping to refuel the dollar-funded risk asset rally," said analyst Lee Hardman of Bank of Tokyo-Mitsubishi.

Investor risk appetite was also boosted by a report that Japan enjoyed its best economic growth in more than two years during the latest quarter.

The economy expanded 1.2 percent in July-September from the previous quarter -- 4.8 percent on an annualized basis, the best performance since 2007 and about twice as fast as expected.

As the dollar dropped against the euro and yen, gold struck an all-time peak of 1,143.60 dollars an ounce in London, in what analysts said was a broad move into riskier assets including stocks and commodities. In New York, gold hit 1,144.20 dollars per ounce.

"The equity market rally and the rally in crude and gold are attributed to the APEC pledge to keep expansionary fiscal and monetary stimulus policies until the global recovery is durable," said Michael Malpede at Easy Forex.

Leaders of the Asia-Pacific Economic Cooperation (APEC) forum, who together steer more than half the global economy, made the pledge at a weekend gathering in Singapore, saying they would maintain hefty stimulus spending "until a durable economic recovery has clearly taken hold".

In late New York trade, the dollar stood at 1.0072 Swiss francs from 1.0117 Friday.

The pound was at 1.6818 dollars after 1.6693.

- AFP /ls