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Forex - Dollar drops as Bernanke hints at need for stimulus

Forex Aug 31, 2012 03:35PM ET
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This article has already been saved in your Saved Items - The dollar dropped against most major global currencies on Friday after Federal Reserve Chairman Ben Bernanke said monetary authorities remain poised to stimulate the economy if it doesn't show signs of improvement soon.

In U.S. trading on Friday, EUR/USD was up 0.56% at 1.2576.

Bernanke said in his speech at the Fed's annual symposium in Jackson Hole, Wyoming, that the Fed remains ready to intervene with stimulus measures though the speech made no mention of more specific plans.

Monetary stimulus tools tend to weaken the dollar by design, pushing down interest rates and sending stock prices rising as well.

Inflationary pressures to tend to rise down the road as well.

"The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant," Bernanke said in prepared remarks at his speech.

"Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Monthly jobs reports have come in choppy lately, showing anything other than sustained improvement.

The economy added a net 163,000 jobs in July, 64,000 jobs in June and 87,000 in May, according to the Bureau of Labor Statistics, which stoked expectations that the Federal Reserve will eventually stimulate the economy, likely with another round of quantitative easing, under which the Fed buys bonds held by banks, pumping the economy full of liquidity to push down interest rates, weakening the dollar in the process.

Investors largely shrugged off solid factory orders in the U.S..

U.S. factory orders rose 2.8% in July from June, outpacing market forecasts for a gain of 1.9%.

Elsewhere in the U.S. the final reading for the Thomson Reuters/University of Michigan consumer sentiment index came to 74.3 in August, up from analysts' calls for 73.6, the preliminary reading for August and also July's final reading.

Also in the U.S., the Chicago PMI fell more than expected in July, data showed on Friday.

In a report, research group Kingsbury International said that the Chicago PMI fell to a seasonally adjusted 53.0, from 53.7 in the preceding month.

Analysts had expected the Chicago PMI to fall to 53.5 last month.

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.60% at 1.5880.

The dollar was down against the yen, with USD/JPY trading down 0.37% at 78.34, and down against the Swiss franc, with USD/CHF trading down 0.59% at 0.9546.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.64% at 0.9861, AUD/USD up 0.33% at 1.0323 and NZD/USD up 0.58% at 0.8032.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.59% at 81.24.

Forex - Dollar drops as Bernanke hints at need for stimulus

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