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- * Dollar hits three-month low vs basket of currencies * Euro rallies to eight-week high, ECB meets next week * Bernanke: Fed to act as needed, labor market a 'grave' concern By Wanfeng Zhou NEW YORK, Aug 31 (Reuters) - The dollar...
Fri Aug 31, 2012 11:19pm IST
* Dollar hits three-month low vs basket of currencies * Euro rallies to eight-week high, ECB meets next week * Bernanke: Fed to act as needed, labor market a 'grave'concern By Wanfeng Zhou NEW YORK, Aug 31 (Reuters) - The dollar dropped to aneight-week low against the euro and two-week low against the yenon Friday after Federal Reserve Chairman Ben Bernanke said highunemployment is "a grave concern," reinforcing expectations forfurther monetary easing to revive growth. Bernanke, speaking at the Kansas City Fed's annual symposiumin Jackson Hole, Wyoming, said the U.S. economy faced "daunting"challenges and that the Fed would act as needed to strengthenthe recovery. But he did not explicitly signal an imminent move. The dollar had briefly pared losses against the euro and yenimmediately after Bernanke spoke as he disappointed someinvestors, who had hoped for a clear signal of near-term easing,before resuming declines to hit session lows. "The only thing that sticks out is that the 'grave' concernabout the labor market, which is a little stronger than thelanguage used in the past," said Win Thin, global head ofemerging market strategy at Brown Brother Harriman in New York."That will make next week's payrolls report even moreimportant." The August payrolls report is due next Friday, days beforethe next Federal Open Market Committee, which meets on Sept.12-13. Many analysts reckon there's a strong possibility the Fedwill announce a third round of bond-buying at the meeting. The euro rose as high as $1.2636 on Reuters data, thestrongest since early July. It was last up 0.5 percent at$1.2567. Hopes for near-term action had grown since Fed meetingminutes last week showed policymakers could act "fairly soon,"but investors have since pared back expectations that a newround of bond purchases is coming in September. "Given the startling impact of Bernanke's speech two yearsago there was some in the market who hoped that he would giveclear guidance of additional QE for the next FOMC meeting whichstarts on Wednesday 12 September," said Ken Dickson, investmentdirector of currencies at Standard Life Investments in Edinburgh, which manages assets $256.6 billion." This year,however, the speech delivered no new news." "Nevertheless Bernanke makes it very clear that he thinksthat QE is an effective tool and notes that employment has notrecovered in line with the normal pattern seen after eachrecession since World War II," Dickson said. The euro zone common currency also drew support frommonth-end flows, Middle East buying, and expectations theEuropean Central Bank will announce clear steps to tackle theeuro zone debt crisis at its policy meeting next week. The ECB meets next Thursday and hopes of bond-buying havegrown, although investors will likely wait to see whether theECB provides enough details before buying euros aggressively. France's member on the ECB executive board, Benoit Coeure,appeared to take a softer line than his German colleague onconditions for the central bank buying sovereign debt, saying onFriday that simply supporting the EU's rescue funds wouldsuffice. German central bank chief Jens Weidmann's reported threat toresign has piled pressure on ECB President Mario Draghi toassuage his opposition to a new bond-buying plan. "Ahead of the ECB meeting next week the market expectationstill seems to be that President Draghi will deliver -- that is,he will outline a credible plan to save the euro zone nextThursday," Citigroup wrote to clients. "We have repeatedly expressed our skepticism that the ECBwould live up to the elevated market expectations. Even if thereis a concrete plan on how to implement the conditional bondpurchases program, important questions will likely remain." The dollar fell to a session trough of 78.18 yen, theweakest in more than two weeks. It was last at 78.30, down 0.4percent on the day. On the week, the euro rose about 0.4 percent against thedollar, its third straight week of gains. The dollar fell about0.5 percent against the yen, it second week of declines.
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