Thursday April 3, 2008 - 01:22:34 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar falls on Bernanke recession remark
(Recasts; updates prices, adds comment, adds byline)
By Steven C. Johnson
NEW YORK, April 2 (Reuters) - The dollar fell against most
currencies on Wednesday after Federal Reserve Chairman Ben
Bernanke said the U.S. economy may dip into recession in the
first half of 2008, prompting traders to bet the central bank
will cut interest rates again.
The Fed chief's comments lifted the euro to $1.5685 <EUR=>,
up 0.5 percent on the day, and erased dollar gains against
other major European currencies seen during the prior session.
While Bernanke told a Congressional committee that he
expects U.S. growth to recover in the second half of the year,
his gloomier near-term outlook dulled hopes that the worst of
the credit crisis was already over.
"Bernanke provided a gentle reality check with his reminder
that interest rates are probably going to be cut again and that
the risk of a recession is still here," said Ashraf Laidi,
chief market analyst at CMC Markets in New York.
Among the major currencies, the greenback managed to hold
gains only against the yen, rising 0.5 percent to 102.35 yen
<JPY=>, which traders tied partly to Bernanke's more positive
long-term outlook and his assertion that he does not anticipate
having to bail out another Wall Street bank.
The Fed orchestrated a dramatic rescue of Bear Stearns in
March after the U.S. investment bank warned that it was close
to bankruptcy. Bernanke's testimony on Wednesday was his first
to Congress since it acted to backstop the bank.
The dollar fell 0.4 percent to 1.0082 Swiss francs <CHF=>
while sterling rose 0.6 percent to $1.9870 <GBP=>.
"(Bernanke) is saying the economy seems to be in the midst
of a recession and is suggesting the Fed has given itself more
leeway to cut rates, which is obviously weighing on the
dollar," said Samarjit Shankar, director of global FX strategy
at The Bank of New York Mellon in Boston.
The Fed has cut its benchmark interest rate six times since
September, bringing it to 2.25 percent from 5.25 percent.
But the European Central Bank has held rates firm at 4
percent to fend off euro zone inflation, which hit a record
high in March. Higher rates make a currency more attractive.
Bernanke's remarks came at a time when financial markets
have been feeling a bit more optimistic, a sentiment that
blossomed on Tuesday when UBS said it took a $19 billion hit on
risky U.S. real estate and related assets.
Though the losses were huge, investors interpreted the news
to mean the bank had purged its balance sheets of toxic debt.
Lehman Brothers Holdings (LEH.N: Quote, Profile, Research) also inspired confidence
by raising $4 billion of capital on Tuesday, quelling
speculation that the bank may be in trouble. For details, see
EURO ZONE BLUES
The dollar's losses against the euro were partly limited by
a report that euro zone leaders are expected to raise concerns
about what they see as the excessive strength of the euro at a
Group of Seven meeting on April 11, according to European Union
The euro has gained 7.5 percent against the dollar this
year alone, topping out at a record high just above $1.59 in
mid-March before easing back to its current level. It gained
more than 10 percent in 2007.
Beyond that, investors were looking ahead to Friday's U.S.
employment report, expected to show the economy shed jobs for a
third straight month.
But a report on Wednesday from ADP Employer Services
surprised markets by showing the economy added 8,000 private
sector jobs in March. Economists polled by Reuters had expected
a 48,000 loss.
"It's always risky to put your faith on the ADP data, but
it's another positive news for the U.S. so that's keeping bids
on the dollar," said Brian Dolan, chief currency strategist at
Forex.com in Bedminster, New Jersey.
(Additional reporting by Nick Olivari; Editing by Gary
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