The dollar dipped against other currencies, particularly against the euro during European trading hours Friday, as market participants braced for Federal Reserve Chairman Ben Bernanke's speech at the Jackson Hole policy symposium in Wyoming later in the day.
The market has been almost in lockdown this week in advance of Mr. Bernanke's 1400 GMT speech, as many traders and investors are looking for hints of further monetary easing or asset purchasing—known as quantitative easing—especially after the minutes of the Fed's latest meeting showed that board members may be leaning toward a more downbeat view on the U.S. economy.
The euro traded as high as $1.2612, marking a rise of more than a cent on the day, amid a so-called short squeeze, where investors reversed their negative bets on the common currency, and sold dollars just in case of a heavy hint of U.S. easing to come.
European equities also reversed their losses from the previous day, trading in positive territory while the borrowing costs of debt-stressed euro-zone member countries such as Spain eased.
"It is probably best to expect that Bernanke's comments will lie towards the more dovish end of market expectations," said Steven Barrow, chief currency strategist at Standard Bank in London.
"His comments could produce a 'risk on' feel to the currency market... But while there might be a bounce in the risk currencies—and some weakness for the dollar—we don't expect the move to go too far," he said.
Meanwhile, disappointing euro-zone data did little to dampen the rise higher in the euro. Unemployment in the euro zone topped 18 million in July, taking the rate to 11.3%, while inflation data was higher than expected at 2.6% in August from 2.4% in July.
The Norwegian krone weakened against the euro after the Norwegian central bank, Norges Bank, said it plans to sell 500 million kroner ($86 million) per day in September to buy foreign currency on behalf of Norway's oil fund. Norges Bank has sold 350 million kroner a day since January to buy foreign currency for the oil fund, which is also know as the Pension Fund Global.
Around midday in Europe, the euro was trading at $1.2609 against the dollar, compared with $1.2507 late Thursday in New York. The dollar was at ÂĄ78.51 against the yen, compared with ÂĄ78.63, while the euro was at ÂĄ99.06, compared with ÂĄ98.34. Meanwhile, the pound was trading at $1.5852 against the dollar, compared with $1.5785 late Friday in New York. The Wall Street Journal dollar index, which tracks the U.S. dollar against a basket of currencies, was at 70.933 from about 71.172.
