Tuesday June 10, 2008 - 22:29:03 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rallies as Bernanke focuses on inflation
(Updates prices; adds comments, byline)
* Dollar jumps broadly, touches 3-1/2-month high vs yen
* Bernanke's inflation remarks spark rate rise talk
* Bank of Canada keeps benchmark interest rate steady
By Steven C. Johnson
NEW YORK, June 10 (Reuters) - The dollar soared against the
euro on Tuesday and hit a 3-1/2-month peak versus the yen after
Federal Reserve Chairman Ben Bernanke continued his tough talk
on inflation, boosting expectations of higher interest rates.
Speaking late on Monday, Bernanke said the U.S. central
bank would resist rising inflation expectations and added that
the latest surge in energy costs was stoking price pressures.
He also said the risk of a sharp downturn in the U.S.
economy had receded, sending U.S. bond yields soaring and
putting the euro on track for its biggest two-day decline
against the dollar in three years.
Bernanke's comments "support the notion that the Fed is
taking the fight against inflation very seriously and might
even consider interest rate hikes before year-end," said
Matthew Strauss, currency strategist at RBC Capital Markets in
Last week, Bernanke shocked markets by saying a weaker
dollar was adding to inflation risks -- a rare departure from
usual Fed policy of not commenting on the dollar.
U.S. Treasury Secretary Henry Paulson on Monday declined to
rule out market intervention to stabilize the dollar, comments
he let stand in a television interview on Tuesday.
The euro has lost a touch more than 2 percent against the
dollar over the last two sessions, leaving it en route to its
worst two-day performance since June 2005. It last traded at
$1.5450 <EUR=>, down 1.2 percent from late Monday in New York.
"There's been a definite change in tone," said Alan Ruskin,
chief international strategist at RBS Greenwich Capital in
"We've moved from a kind of 'benign neglect' (on the
dollar) to what is, to my mind, verbal intervention," he said,
adding that with oil prices surging to record highs, "there's
nothing much to be gained by weakening the dollar further."
The dollar also rose 1 percent to 107.44 yen <JPY=>, a
3-1/2-month high, and strengthened by 1.5 percent to 1.0427
Swiss francs <CHF=>.
The dollar also gained 1.2 percent against a basket of
currencies to 73.696 .DXY. It was the biggest one-day jump in
the dollar index since January 2006 at current prices.
Federal funds futures FFF9 suggested that traders are
fully pricing in the prospects of the Fed lifting its fed funds
target interest rate by half a percentage point by October and
by a total of three quarters of a point by year-end.
Though Bernanke was eclipsed last week by European Central
Bank President Jean-Claude Trichet, who signaled a near-term
ECB rate hike to combat soaring euro zone inflation, Bernanke's
comments this week put the spotlight back on the Fed.
Bernanke's most recent comments indicated that top
policy-makers are trying to limit the inflationary impact from
oil CLc1 rising to nearly $140 a barrel ahead of this
weekend's G7 meeting in Japan.
Scotia Capital strategist Steve Malyon called them "a
notable sharpening of the inflation rhetoric compared with his
remarks last week."
Dallas Fed President Richard Fisher also said the Fed will
not allow inflation to get out of control and is aware that a
weaker dollar could feed into higher prices.
Meanwhile, the Bank of Canada surprised markets by holding
interest rates steady at 3 percent on Tuesday, signaling an end
to its rate-cutting cycle because of strong price pressures.
The U.S. dollar last traded at C$1.0227 <CAD=>, little
changed from late on Monday.
(Additional reporting by Nick Olivari; Editing by James
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