Dollar rebounds after post-Fed speech sell-off

AP News
|
Posted: Oct 15, 2010 5:12 PM
Dollar rebounds after post-Fed speech sell-off

The dollar reversed course to end higher Friday, after falling to lows against multiple currencies as Federal Reserve Chairman Ben Bernanke made his strongest case yet for injecting billions more dollars into the economy.

Against six major currencies, the dollar has dropped about 8 percent since Bernanke first hinted that the Fed was ready to act to provide further stimulus to the economy. But it closed up about 0.5 percent on Friday, even though Bernanke made comments underscoring that the Fed is prepared to offer more relief.

The gain shows that investors were cashing in their anti-dollar bets after the deep slump, said Eric Viloria, currency strategist at Forex.com.

However, investors expect the Fed to announce at its meeting in early November that it will begin buying bonds, driving interest rates down further. Extra dollars flowing from the Fed's Treasury purchases could send the dollar's falling value even lower.

"The implications for the (U.S. dollar) are stark," said Michael Woolfolk, an analyst with Bank of New York Mellon, in a research note.

But a weaker dollar may help the U.S. economy. The Fed hopes its program will boost buying and spending by consumers and companies, spur price increases and bring down the unemployment rate. A weaker dollar could help propel U.S. exports and drive prices higher.

In late trading in New York, the euro fell to $1.3963 from $1.4057. The euro pulled back from a nine-month high of $1.4157 earlier in the day. While investors expect the Fed's actions to give a boost to the economy, the European Central Bank has shown no signs of considering similar moves. That has helped drive the euro since late August.

In other trading, the British pound was nearly flat at $1.5985 from $1.5987, after earlier peaking at $1.6104, its highest point since January. The dollar was also unchanged at 81.43 yen, still hovering just above Thursday's 15-year low of 80.94 yen.

The Australian dollar was briefly worth more than one U.S. dollar early on Friday, for the first time since the Australian currency became freely traded on the market in 1983.

In other late trading, the dollar rose to 1.0133 Canadian dollars from 1.0070 Canadian dollars, and climbed to 0.9598 Swiss francs from 0.9529 Swiss francs.