Reuters: US Dollar Report: FOREX-Dollar extends falls after dovish Fed

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FOREX-Dollar extends falls after dovish Fed Mar 27th 2012, 10:39 Tue Mar 27, 2012 6:39am EDT * Bernanke comments seen keeping alive chances of QE3 * Dollar index hits fresh 4-week high * Euro also gains but debt worries may cap its rise By Jessica Mortimer LONDON, March 27 (Reuters) - The dollar fell to its lowest in four weeks against a basket of major currencies on Tuesday, extending falls after Federal Reserve Chairman Ben Bernanke kept the door open for more monetary easing. Analysts said the dollar could suffer further in the short term if speculation about the prospect of a third bout of quantitative easing persists. However, if U.S. data continues to point to an economic recovery the currency could start to push higher again. The euro also hit its highest in a month versus a weaker dollar as the cost of insuring against default in Spain or Italy fell on expectations that a reinforced rescue fund, big enough to protect these countries, could emerge from a euro finance ministers' meeting at the end of the week. But the relentless weight of worry about euro zone debt was expected to hold down short-term gains for the euro, which may struggle to sustain any move above $1.35, analysts said. The dollar index fell around 0.2 percent to 78.770, its weakest since March 2 as Bernanke said on Monday the policy of very low interest rates was needed to reduce unemployment, making it clear he was in no rush to reverse course. "Bernanke's statement has left the dollar vulnerable. It will need some strong U.S. data to wipe out expectations of a new round of quantitative easing and over the next couple of weeks data will be crucial," said Niels Christensen, currency strategist at Nordea in Copenhagen. "In the short term there could be more upside for euro/dollar but not much. I can't see a move above $1.35 being sustained given the situation in Europe." U.S. consumer confidence figures at 1400 GMT could be closely watched, he said. A weaker dollar helped the euro rise to $1.33857 on EBS trading platform, pulling well away from the mid-March low just above $1.30 and leaving it with the potential to target the late February highs around $1.3486. Traders said the euro extended gains after breaking above Monday's high of $1.3368. However, it later eased to trade last at $1.3356. "Technically, the euro has had a decent retracement from the mid-March lows around $1.30 and the bias is for a little more upside," said Elsa Lignos, currency strategist at RBC. The euro drew support from Germany's signal on Monday that it was willing to increase the resources available to tackle the region's debt crisis, as well as from a better-than-expected German sentiment survey. But worries remained that the crisis will continue to deepen in Spain, Italy and Portugal. High borrowing costs in Spain are of particular concern before the government presents its budget on Friday. YEN STEADIES AFTER DROP Traders and analysts said moves in U.S. Treasuries could be key for the dollar at this juncture. If buying of Treasuries gains steam and bond yields fall in the wake of Monday's Bernanke's comments, the dollar could face more pressure. The dollar was down 0.2 percent against the yen at 82.68 yen , staying away from a recent 11-month high of 84.19 yen. However, the yen may still be vulnerable to more selling. The currency has been under heavy pressure since Japan announced monetary easing measures last month. Elsewhere, the Australian dollar was steady at $1.0529, giving back some ground after rising about 0.7 percent on Monday though it stayed well above last week's two-month low of $1.0336. "As participants cautiously price more QE back into markets, the commodity currencies - the Australian, Canadian, and New Zealand Dollars - are likely to attract attention given their high yields relative to the U.S. dollar," said Christopher Vecchio, currency analyst at DailyFX. Link this Share this Digg this Email Reprints

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