Reuters: US Dollar Report: FOREX-Dollar gains as Bernanke refrains from stimulus hint

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FOREX-Dollar gains as Bernanke refrains from stimulus hint Jun 7th 2012, 20:48 Thu Jun 7, 2012 4:48pm EDT * Fed's Bernanke refrains from offering stimulus hint * Surprise China rate cut boosts some riskier currencies By Julie Haviv NEW YORK, June 7 (Reuters) - The dollar edged slightly higher against the euro in choppy trading on Thursday as the Chinese central bank's actions to boost growth mostly offset comments made by Federal Reserve Chairman Ben Bernanke. Trade was extremely choppy, with the euro earlier hitting a two-week high after China's central bank cut benchmark interest rates to support growth in the world's second-largest economy. Also on Thursday, Bernanke said the U.S. central bank was ready to shield the economy if financial troubles mounted, but offered few hints that further monetary stimulus was imminent. Bernanke, however, also said the Fed is ready to act if Europe's crisis deepens. "The dollar largely broke even after remarks from Bernanke poured cold water on the prospect of imminent action to support a fragile economy," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C. "Going forward, the dollar may have more room to roam to the upside after Bernanke suggested a low probability of the Fed launching a full blown third round of bond buying, or QE3, anytime soon." QE3 is negative for the dollar as it is tantamount to printing money. "Bernanke didn't provide much in terms of details, so further policy still hinges on economic data," said Mark McCormick, G-10 currency strategist at Brown Brothers Harriman in New York. "The two points Bernanke stressed - the euro zone and the looming U.S. fiscal cliff - could mean an easing announcement at its meeting later this month," he said. "I do not foresee another round of Fed quantitative easing, but perhaps through a communication channel or an extension of Operation Twist." Operation Twist involves the Fed exchanging short-term Treasuries in its portfolio for long-term bonds. Meanwhile, German Chancellor Angela Merkel said Europe was ready to act to ensure stability in the euro zone as Spain's credit rating was cut by three notches amid expectations it may soon seek EU help for banks beset by bad debts. The euro was last at $1.2564, down 0.1 percent on the day. The euro earlier peaked at $1.2625, according to Reuters data, its highest level since May 23. Against the yen, the euro also hit its highest level since May 23 at 100.61 yen before paring gains to trade at 99.98 yen, up 0.4 percent. Before Bernanke began his testimony to Congress, trading had been influenced by China's twin surprises on interest rates. The global economy has floundered in recent weeks. Risks to growth have mounted on concerns about a possible Greek exit from the euro zone and the fragility of the Spanish banking system, putting pressure on euro zone politicians and global central banks to come up with a credible policy response. Speculation that Spain could become the fourth euro zone country to need an international bailout prompted investors to sell the euro heavily last week, although European sources have said Germany and European Union officials are urgently exploring ways to support Spain's country's stricken banks. Many market players were already expecting euro gains to be limited. A Reuters poll suggested the euro was unlikely to recoup recent steep losses against the dollar in the next 12 months. The dollar was trading 0.5 percent higher at 79.58 yen after posting a session peak of 79.78, also the highest since May 23 using Reuters data. Link this Share this Digg this Email Reprints

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