Dollar gains as Fed talks of normalizing policy

AP News
Posted: May 18, 2011 3:37 PM
Dollar gains as Fed talks of normalizing policy

The discussion among Federal Reserve policymakers on how to end the extraordinary support for financial markets the central bank has provided helped tug the dollar higher Wednesday.

Late in the afternoon in New York, the euro traded at $1.4226 from $1.4229 late Tuesday. It had peaked at $1.4287 before the release of minutes from the Federal Reserve meeting in April.

The record revealed that some policymakers thought the Fed would need to start raising interest rates this year. Fed members also discussed the strategies on how to tighten the taps on the flow of credit that has helped support stock markets. The minutes said that the discussion did not mean that any policy changes were in store soon, however.

"People have recognized that the Fed will eventually have to tighten rates, but it is very far away," said Mark McCormick, a currency strategist with Brown Brothers Harriman in New York. "The Fed is unlikely to normalize monetary policy for a very long time, potentially the second half of 2012."

Fed Chairman Ben Bernanke has said that he thinks rising prices for oil and food will have only a temporary effect on broader inflation. Investors have expected that the Fed will keep the country's key interest rate near zero for a long time, while other central banks around the world are already raising interest rates to combat inflation.

Higher rates tend to support a currency. Expectations for low U.S. rates have weighed on the dollar this year, but renewed worries about Europe's debt crisis this month have helped pare some of those losses.

In other trading Wednesday, the British pound slid to $1.6142 from $1.6251, while the dollar rose to 81.63 Japanese yen from 81.43 yen. The U.S. currency gained to 0.8814 Swiss franc from 0.8807 franc but was almost unchanged at 97.25 Canadian cents from 97.29 Canadian cents.