The dollar gained against the euro and rallied from record lows versus the Swiss franc on Thursday after the Federal Reserve chief dampened growing expectations another round of monetary easing was imminent.
Fed Chairman Ben Bernanke reiterated that the central bank would be prepared to inject more stimulus into the system if the US economy worsens after the Fed ended its $600 billion asset-purchase program, dubbed QE2, last month. But he told a US Senate committee on Thursday that the time had not come yet and noted inflation had picked up since late 2010.
The euro, which had been trading near $1.4225, fell on Bernanke's remarks and was last down 0.3 percent at $1.4135. Bernanke's comment also helped the dollar climb from a four-month trough against the yen. Comments by Bernanke on Wednesday, in the first of two days of testimony before Congress, that the Fed could do more to boost the economy had bruised the dollar.
"The dollar has unwound its losses from yesterday because Bernanke has backed away from QE3 (quantitative easing)," said Richard Franulovich, senior currency strategist at Westpac in New York. The greenback still faced an uphill battle though, particularly after Moody's warning late on Wednesday that the United States could lose its top credit rating if Congress does not raise the debt ceiling.
In a statement, Moody's said it sees a "rising possibility" that the debt limit will not be raised in time to prevent a default on some US Treasury debt obligations. The euro also faces hurdles, traders said, with persistent worries about the eurozone debt crisis likely to keep it under pressure. It retreated from a session high near $1.43 after Italy was forced to pay the highest borrowing costs on record for new 15-year debt.
Investors are worried about European bank exposure to a possible Greek default. French banks are thought to have some of the largest exposure, and price action reflects the unease. Jens Nordvig, global head of G10 FX strategy at Nomura in New York, said the best way to express a bearish view on the euro is to sell it against the Swiss franc.
Both the euro and dollar hit record lows against the Swiss currency on Thursday. In late trading, the euro slipped 0.2 percent to 1.1534 francs, while the dollar rose 0.2 percent to 0.8160 franc. For the week, the dollar was on track for its weakest performance since late May. The rush for safer assets also boosted the yen, with the dollar hitting a four-month low around 78.450 yen before rebounding to 79.15, up 0.2 percent on the day.
The yen's rise prompted warnings from Japan's Finance Ministry, with a senior official saying the country could intervene without warning to weaken the currency.
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