By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar turned up against the euro and improved against other major currencies Friday after Federal Reserve Chairman Ben Bernanke put off until next month discussion of the easing options available to the central bank, relieving worries that the Fed would soon implement policies that could weigh on the U.S. currency.
The dollar index DXY -0.07% , which measures the greenback against a basket of six currencies, turned up to 74.333 from 73.938 before the speech and 74.262 in North American trading late Thursday.
The euro EURUSD +0.30% turned down to $1.4355 from over $1.44 most of the morning and versus $1.4379 Thursday.
The British pound GBPUSD +0.08% slipped 0.3% to $1.6238.
Bernanke declined to discuss any outline of what the Fed could do to support growth, saying it was still difficult to judge how recent stock market weakness, debt-ceiling negotiations and the European crisis had impacted the economy. Read more on Bernanke’s speech at Jackson Hole.
The Fed does expect “a moderate recovery” to continue and strengthen, he said in a speech at Jackson Hole, Wyo.
“To the disappointment of many investors who had been hoping for more aggressive action by the U.S. central bank, the Federal Reserve came up empty by failing to signal any new steps to stimulate the U.S. economy,” said Kathy Lien, director of currency research for GFT.
That was good for the dollar because it forced traders to unwind bets that the Fed would engage in a third round of quantitative easing in some form, which tends to devalue a country’s currency.
Speculation that he would announce more bond purchases or other policy to boost growth supported equities earlier this week. That‘s weighed on the dollar, which has lately tended to lose ground when investors shift into assets considered riskier, like stocks.
While Bernanke spoke, stocks dropped steeply but then recovered. The Standard & Poor’s 500 Index SPX +0.66% lost 0.3%, less than before Bernanke’s speech.
Congress has a role too
Analysts also noted that Bernanke criticized Congress, saying the recent debate over the debt ceiling had hurt the economy and called on lawmakers to do their share to boost growth.
“Bernanke attempted to shift some of the burden from the central bank’s already-wide shoulders by calling on Congress to deliver a short-term fiscal stimulus to aid the economy,” said Andrew Wilkinson, senior market analyst at Interactive Brokers. “The widely-anticipated speech failed to address further quantitative easing but reiterated much of what the Fed said in its Aug. 9 policy statement.”
Adding to worries about the outlook for U.S. growth, a report showed the economy grew slower in the second quarter than previously estimated. See story on U.S. GDP.
Bernanke used the Jackson Hole forum last year to signal a second round quantitative easing, or QE2, which sparked a rush into equities and other assets perceived as risky.
Yen gains on premier’s resignation
Escaping the mainstream focus on Bernanke, the Japanese yen held most of its gains after Prime Minister Naoto Kan said Friday that he is resigning as leader of the Democratic Party of Japan, clearing the way for the election of a new party leader. A party election is expected Monday. Read more on Japan’s election, Naoto Kan.
Against the yen USDJPY -1.15% , the dollar pared its decline to trade at 76.96 yen, compared to ¥77.57 late Thursday.
The euro EURJPY -0.85% lost 0.8% against the yen while the Australian dollar AUDJPY -0.35% fell 0.3%.
