Reuters: US Dollar Report: FOREX-Dollar resumes rally, Fed's Bernanke key to more gains

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FOREX-Dollar resumes rally, Fed's Bernanke key to more gains May 21st 2013, 12:46 Tue May 21, 2013 8:46am EDT * Japanese economy minister hopes for "balanced" yen * Bernanke's Congressional testimony on Wednesday, BOJ meeting in focus NEW YORK May 21 (Reuters) - The dollar continued its advance against the yen on Tuesday after a Japanese minister watered down previous remarks suggesting the yen had weakened enough, but gains were capped before Wednesday's testimony from U.S. Federal Reserve Chairman Ben Bernanke. Speculation the U.S. central bank will trim its bond purchases sooner than expected has mounted given signs of an improvement in the U.S. labor market. Bernanke testifies to Congress at 10 a.m. EDT (1400 GMT) and his words will be combed for clues on when the scheme might end. If Bernanke reiterates his ultra-loose monetary policy stance, the dollar could give up some of its gains against most major currencies. However, any hint asset purchases could be wound down later this year would give the dollar index, which has risen 5.3 percent this year, a huge boost, traders said. "We are watching Bernanke and waiting to see if he hints at when they will begin to unwind QE," said Andrew Dilz, foreign currency trader at Tempus Inc in Washington. "If he hints it is in the near term, look for the dollar to continue to rally. If not, perhaps the dollar weakens a little." The dollar was up 0.5 percent at 102.79 yen after Japanese Economy Minister Akira Amari said he hoped the yen settled at a level justified by fundamentals and at which the impact on imports and exports was balanced. On Monday, the yen rose after Amari suggested at the weekend that its strength had been largely corrected. In 2013 it has lost 15.6 percent, hitting a 4 1/2-year low of 103.30 on Friday. "Amari softened what he said," said Dilz. "The yen still has a little way to correct itself before it's too weak." The dollar index, which measures the dollar against a basket of major currencies, was up 0.4 percent at 84.028, not far from Friday's peak of 84.37, its highest since July 2010. Any dollar declines are seen as temporary, given the U.S. economy is still growing while the euro zone is in recession and the Bank of Japan is committed to flooding the market with liquidity to boost inflation to 2 percent. The BOJ, which began a two-day meeting on Tuesday, is expected to keep policy unchanged but could tinker with its bond-buying plan to curb a recent rise in Japanese yields. Analysts said the yen looked set to resume its recent weakening with Japanese investors likely to hunt higher yields overseas. The euro was down 0.1 percent on the day at $1.2868, as some companies sold the single currency. The euro was likely to struggle on expectations the European Central Bank may lower its deposit rate to below zero to help the recession-hit economy. Link this Share this Digg this Email Reprints

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