Bernanke Outlook Revives Risk Appettite

By John Detrixhe and Catarina Saraiva - Aug 27, 2011

The dollar slid versus the majority of its most-traded peers as Federal Reserve Chairman Ben S. Bernanke said the economy hasn’t deteriorated enough to need immediate stimulus, fueling appetite for higher-risk assets.

Switzerland’s franc had the biggest weekly drop against the euro since July 1 on speculation policy makers will take new steps to curb its strength. The greenback fell for a second week versus the 17-nation currency as Bernanke said yesterday the Fed still has tools to stimulate the economy, spurring bets it may yet take action and damping the currency’s refuge appeal. Data next week may show U.S. employers added fewer jobs this month.

“Bernanke doesn’t want anyone to think that his finger isn’t on the big red button to do more,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “September could bring the trigger for whatever more is going to be.”

The dollar fell against 10 of its 16 major counterparts, dropping 0.7 percent versus the euro to $1.4499 yesterday in New York, from $1.4397 on Aug. 19. It was little changed versus the yen at 76.64, compared with 76.55 a week earlier. Europe’s shared currency appreciated 0.9 percent to 111.17 yen, from 110.20 yen.

New Zealand’s dollar gained the most against the greenback as stocks climbed after Bernanke, in a speech in Jackson Hole, Wyoming, sought to reassure investors that U.S. growth is safe in the long run and the Fed can aid the recovery if needed. The Standard & Poor’s 500 Index rose 1.5 percent yesterday.

The South Pacific currency strengthened 1.7 percent yesterday to end the week at 84.07 U.S. cents, up 2.8 percent over five days, the most since May.
Canada’s Dollar

The Canadian dollar, another currency of a commodities exporter, rose for the first time in five weeks, gaining 0.9 percent to 98.14 cents per U.S. dollar.

The greenback traded within a two-cent range against the euro this week before Bernanke’s speech at the Kansas City Fed’s annual conference in Jackson Hole, between $1.4328 and $1.45, as investors speculated what the Fed chief would say.

At last year’s conference, Bernanke foreshadowed the second round of quantitative easing to spur growth, the purchase of $600 billion of Treasuries from November through June.

The Fed still “has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said yesterday, without specifying when or whether it might deploy them.

A second day has been added to the bank’s next policy meeting in September to “allow a fuller discussion” of the economy and possible responses, Bernanke said.
‘Continue to Ease’

“The Fed will continue to ease, most likely at its next meeting,” Diane Swonk, chief economist at Mesirow Financial Holdings Inc. in Chicago, wrote on the firm’s website. “Ben didn’t specify what they would do at their next meeting, as he still needs to deal with internal opposition to additional easing, but that will not stop him.”

The U.S. economy grew more slowly from April through June than first estimated, Commerce Department data showed yesterday 90 minutes before the Fed chief’s address. That capped the weakest six months of the economic recovery that began in mid- 2009. Gross domestic product gained at a 1 percent annual rate, versus the earlier estimate of 1.3 percent.

U.S. payroll growth slowed in August to 75,000 jobs, from 117,000 in July, economists in a Bloomberg News survey forecast before the Labor Department reports the data Sept. 2.
European Crisis

The euro gained this week versus the yen and greenback even amid concern Europe’s sovereign-debt crisis is worsening. Greek government two-year note yields climbed 46 percent, a euro-era record. The European Central Bank bought Italian and Spanish government bonds, according to people familiar with the transactions, to hold down borrowing costs and keep the crisis from spreading to the two countries.

The shared currency dropped against most major counterparts on Aug. 25 as French, Italian and Spanish stock-market regulators extended temporary short-selling bans they introduced this month in a bid to stem stock-market volatility.

Short investors sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.

The euro appreciated 0.6 percent over the past three months against nine developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes, while the dollar declined 2.1 percent. The Swiss franc strengthened the most, 5.9 percent, and the yen gained 4.5 percent as investors sought refuge amid the slowing U.S. economy and Europe’s debt crisis.
Yen Trading

Japanese Finance Minister Yoshihiko Noda said he’s examining how much speculative trading is influencing the yen, which surged to a post-World War II record of 75.95 per dollar on Aug. 19.

Japan last intervened in the currency market, selling yen to try to curb its climb, on Aug. 4, when it touched 76.97 to the dollar. The yen weakened as much as 4.1 percent that day. It was trading at pre-intervention levels within a week.

The franc tumbled versus all of its 16 most-traded peers this week amid speculation the Swiss National Bank will introduce new measures to damp demand for the currency. Policy makers cut borrowing costs to zero earlier this month, increased bank sight deposits almost sevenfold and left the door open for additional measures.

The Swiss currency fell against the euro and the dollar for a third week, sliding 3.4 percent to 1.1690 per euro in the biggest drop in almost two months, and weakening 2.7 percent to 80.63 centimes per greenback.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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