The dollar held firm against the euro and the yen on Tuesday after comments from Federal Reserve Chairman Ben Bernanke left the door open for another US interest rate rise later in June.
Speaking at an international monetary conference in Washington on Monday, Bernanke suggested the Fed needed to be vigilant to make sure inflation stays under control, even as the US economy starts to shift to a slower pace of growth.
"Bernanke's comments are offering some lingering support for the dollar although we haven't seen a spectacular move higher," said Steven Pearson, chief currency strategist at HBOS.
The possibility the Fed will raise rates for the 17th successive time to 5.25 percent sparked a round of dollar short-covering, helping the US currency recover from a sell-off after data last Friday showed US employment growth last month was slower than expected. But the dollar's recovery was limited as some investors worried about the state of the US economy.
"Higher rates are a supportive factor for the dollar but if the US is raising rates due to inflation pressures, not growth, the impact on the dollar will be limited," said Tony Norfield, head of FX research at ABN Amro.
The euro was down almost a third of a percent at $1.2870 by 1015 GMT after hitting one-year highs just short of $1.2980 on Monday before Bernanke spoke. The dollar traded flat at 112.31 yen.
The euro found some support from eurozone rate expectations, breaking through 145 yen to a six-week high of 145.10 yen. Most analysts expect the European Central Bank to lift rates by 25 basis points to 2.75 percent at its policy meeting on Thursday and to signal more credit tightening is likely in store.
Speculation is still simmering about a potential half-percentage point increase, a view that was underscored after data on Tuesday showed the eurozone's service sector grew at its strongest pace in nearly six years in May.
Euro zone officials so far appear unfazed by the euro's rise to one-year highs against the dollar, although French Treasury Director Xavier Musca said on Tuesday officials are watching developments closely.
EU Monetary Affairs Commissioner Joaquin Almunia and Eurogroup chairman Jean-Claude Juncker have asked for more regular dialogue with ECB President Jean-Claude Trichet, a European Commission spokeswoman said on Tuesday.
The euro group of eurozone finance ministers meets in Brussels later on Tuesday.
Comments
Comments are closed.