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- * Bernanke says Fed prepared to act, but gives few details * Euro drops to 3-1/2-year low vs sterling * Dollar rallies versus yen NEW YORK, July 17 (Reuters) - The dollar recovered from session lows o n T uesday as Federal Reserve...
Tue Jul 17, 2012 11:17pm IST
* Bernanke says Fed prepared to act, but gives few details * Euro drops to 3-1/2-year low vs sterling * Dollar rallies versus yen NEW YORK, July 17 (Reuters) - The dollar recovered fromsession lows o n T uesday as Federal Reserve Chairman Ben Bernankeoffered few hints that the U.S. central bank was ready to offermore stimulus, although he said the Fed is prepared to boost aslowing U.S. economy if needed. Before Bernanke's testimony to the Senate Banking Committeeon Tuesday, investors had increased their bets that he woulddrop more hints about further monetary stimulus after therelease of disappointing U.S. retail sales data on Mo nday. Whenhe failed to specify measures to lift the economy they coveredtheir shorts on the dollar. Another round of quantitative easing would weigh on thegreenback because it would result in flooding the financialsystem with dollars, which would diminish the currency's value. "Despite expectations by many market participants that theFed chief would yield to calls for quantitative easing, hisstatement indicated nothing of the sort," said Neal Gilbert,currency strategist at GFT in New Jersey. "He continued to repeat the same line that he did at hismonetary policy decision press conference back in June, alongwith what was released last week in the minutes of thatmeeting." Bernanke said the Fed stands ready to offer additionalsupport to the U.S. economy, but stopped short of signalingaction in the near term. He said the U.S. recovery is being heldback by Europe's debt crisis and uncertainty surrounding U.S.fiscal policy. The euro hit session lows against the dollar at $1.2187 in the aftermath of Bernanke's comments. It was last at$1.2276, little changed on the day. Stops at $1.2240 were takenout as were bids at $1.2210-$1.2200, traders said. Weakness in the euro zone's shared currency, however, hasnot sparked that much demand for protection in the optionsmarket against further falls. Traders expect a gradual fall inthe euro from current levels. The cost of protection against further euro weaknessactually cheapened on Tuesday, with puts -- or bets the currencywould depreciate -- trading at 1.08 percent.Earlier this month, puts were at 1.5 percent. The euro hit a 3-1/2-year low against sterling anddropped to a record trough against the Australian dollar. The dollar reversed losses against the Swiss franc to alsotrade little changed at 0.9787 franc. It was also littlechanged versus sterling and the New Zealand dollar. Still, quantitative easing is not exactly off the table,said Joe Manimbo, senior market analyst at Western UnionBusiness Solutions in Washington. "The dollar may have limitedupside scope," he said, which "should buy the dollar some timeto test fresh highs." The Fed last month expanded efforts to keep long-terminterest rates low by announcing it would buy an additional $267billion in long-term bonds while selling short-term securitiesunder a program known as "Operation Twist." However, it held off from launching a third round ofoutright bond purchases that would expand its balance sheet,known as quantitative easing. The greenback firmed 0.2 percent against the yen to 79.05yen, a day after dropping to one-month lows. Expectations that the Bank of Japan could intervene andcheck gains by the yen kept investors wary, traders said. Japanese Finance Minister Jun Azumi hit out at speculatorsbetting on gains in the yen due to weak U.S. economic data, andhinted the government was prepared to intervene to stemexcessive moves.
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