Investors had seen lower chances for more easing from the Fed in recent weeks as a run of data suggested the recovery in the world’s biggest economy, including the beleaguered labour market, was gaining traction
LUCIANA LOPEZ
Published: 2012/03/26 05:52:23 PM
The dollar slid against the euro and the Swiss franc Monday after remarks by Federal Reserve Chairman Ben Bernanke spurred views that the bank could yet flood the market in another round of quantitative easing.
The euro hit a better than three-week high against the greenback as the dollar slid to a similar low against the Swiss franc shortly after Bernanke said that the US economy needs to grow faster to bring down the unemployment rate more.
"At the very least this leaves that door cracked open to QE, but it definitely reaffirms the idea that the Fed is going to keep its foot on the gas pedal, at least in the foreseeable future," said Stewart Hall, a senior currency strategist with RBC Capital Markets in Toronto.
Investors had seen lower chances for more easing from the Fed in recent weeks as a run of data suggested the recovery in the world’s biggest economy, including the beleaguered labor market, was gaining traction.
Bernanke’s comments helped take the edge off those views.
"He’s being dovish and sort of downplaying the pace of labor market improvement we’ve had so far," said Sean Incremona, an economist at 4Cast Ltd. in New York.
Bernanke’s remarks helped push the euro past resistance at $1,3302, the 61,8% retracement of its late February to mid-March fall.
The euro rose 0,32% to $1,3314 after climbing as high as $1,3329, with the dollar off 0,32% to 0,9048 Swiss francs.
The single currency had bumped up against the $1,33 level earlier in the session after the German Ifo think tank’s business climate index rose to 109,8, slightly beating expectations of a steady reading of 109,6.
However, the euro rose only briefly after the data, with analysts and traders mindful that high oil prices could pose a risk to growth, especially as purchasing managers’ indices last week showed German manufacturing activity shrinking
"Ifo data at 0,2 away from consensus is not a strong number.
The PMIs are more forward-looking and retail sales across Europe have been awful," said Maurice Pomery, managing director at consultants Strategic Alpha.
"The growth story is worrying. Spain, Italy and Portugal are struggling to get growth and even Germany and France are slowing."
Investors could get more clarity on those worries after a number of events t his week, including bond auctions in Italy, a meeting of euro zone finance ministers and Spain’s budget on Friday. Italy is seeking to raise up to 7,5 billion euros amid renewed pressure on peripheral euro zone debt.
Worries are also growing about Spain after a government setback in regional elections, making Prime Minister Mariano Rajoy’s task of pushing through harsh spending cuts more difficult.
"Really we’ve made a big stride but we haven’t actually solved the problems" in the euro zone, said Camilla Sutton, chief currency strategist at Scotia Capital. The euro could see recurring bouts of selling through the year as those worries persist, she added.
DOLLAR FIRMER
The dollar advanced against the Japanese currency, gaining 0,45% to ÂĄ82,68.
Traders said they would prefer to buy the dollar and sell the yen, with repatriation inflows ahead of the Japanese fiscal year-end on March 31 unlikely to change the bearish sentiment toward the Japanese currency over the medium term.
"We are expecting the dollar/yen pair to trade in a 80-85 yen range with a risk of an upside break. A lot will depend on whether the economies outside the US also pick up," said Paul Robson, currency strategist at RBS Global Banking.
"As long as the US economy shows signs of outperforming the others, the dollar would be supported."
The growth-linked Australian dollar was up 0,66% at $1,0527 after a fall last week.
