LONDON, Nov 17 - The dollar was little changed on Tuesday, near the previous day's 15-month low struck after senior Federal Reserve officials said U.S. rates will remain low but supported by the euro's inability to hold above $1.50.
Fed Chairman Ben Bernanke surprised investors on Monday with a rare comment on the dollar when he said the central bank is "attentive to implications of changes in the value of the dollar".
Some interpreted this as a sign the Fed is worried further depreciation could stoke inflation. But the market soon focused on the other main thrust of his speech, his reiteration that interest rates will remain exceptionally low for an "extended period". [ID:nN16514940]
The euro briefly popped above $1.50 but was once again unable to hold above that level, where large options-related activity is also providing tough resistance, traders said.
Bernanke spoke on Monday while U.S. President Barack Obama was in China, although few expect the visit to result in any near-term changes in Beijing's foreign exchange policy.
Chinese President Hu Jintao made no mention of the yuan after meeting Obama, and the U.S. leader only said he was pleased with China's commitment on moving towards more market-oriented exchange rates. [ID:nSP421898]
"It's very unusual for the Fed to even comment on the dollar, so in that respect the market was caught by surprise. But in the end ... there wasn't really that much power behind (Bernanke's) words," said Johan Javeus, strategist at SEB in Stockholm.
For the dollar to reverse its long-term downtrend, China needs to take greater steps toward a more flexible currency regime, or the Fed has to signal rate hikes are imminent.
"Neither of those prerequisites have been fulfilled, so the controlled, grinding lower of the dollar will continue," Javeus said.
At 0835 GMT the dollar index .DXY =USD was little changed on the day at 74.95, after striking a 15-month low of 74.679 on Monday, and seemed to have found some support around the 74.75 level for now.
The euro EUR= slipped 0.2 percent to $1.4940, from above $1.5015 struck on Monday, weighed down early on by profit booking and options-related selling around $1.50.
It is also currently right in the middle of the $1.48-$1.51 range which traders say marks a large "double-no-touch" options structure that rolls off on Friday.
The dollar fell a third of a percent against the yen to 88.71 yen JPY=, its lowest in just over a month and drawing closer to October's eight-month low at 88.01 yen.
STERLING UP, AUSSIE DOWN
Richard Fisher, president of the Dallas Fed, said on Monday the dollar's decline so far has not been disorderly although the commitment to keep rates low for an extended period could create the potential for carry trades. [ID:nN16518637]
And Fed Vice Chairman Donald Kohn said the low interest rate policy was meant to encourage investors to move into riskier assets and there are no signs yet of an asset bubble building up in the United States. [ID:nNYS007538]
"While verbal support may moderate the pace of dollar decline, it is unlikely to affect a structural trend that reflects well-entrenched fundamentals," Citigroup strategists said in a note on Tuesday.
"Current dollar short positioning is not particularly stretched, and investors may continue to look to sell on rallies," they said.
Sterling was well supported after Bank of England policymaker Andrew Sentance said the UK economy is moving towards recovery and Italian press reported Italian chocolate maker Ferrero might be considering an offer with friendly investors for an alliance with Britain's Cadbury (CBRY.L).
The euro was last down 0.2 percent on the day at 88.80 pence EURGBP=.
The Aussie dollar AUD=D4 was the biggest loser among major currencies early on Tuesday, retreating from 15-month highs of $0.9407 to $0.9305, after minutes from the Reserve Bank of Australia's (RBA) last board meeting showed the pace of further tightening was uncertain. [nSYD415302].
Fed Chairman Ben Bernanke surprised investors on Monday with a rare comment on the dollar when he said the central bank is "attentive to implications of changes in the value of the dollar".
Some interpreted this as a sign the Fed is worried further depreciation could stoke inflation. But the market soon focused on the other main thrust of his speech, his reiteration that interest rates will remain exceptionally low for an "extended period". [ID:nN16514940]
The euro briefly popped above $1.50 but was once again unable to hold above that level, where large options-related activity is also providing tough resistance, traders said.
Bernanke spoke on Monday while U.S. President Barack Obama was in China, although few expect the visit to result in any near-term changes in Beijing's foreign exchange policy.
Chinese President Hu Jintao made no mention of the yuan after meeting Obama, and the U.S. leader only said he was pleased with China's commitment on moving towards more market-oriented exchange rates. [ID:nSP421898]
"It's very unusual for the Fed to even comment on the dollar, so in that respect the market was caught by surprise. But in the end ... there wasn't really that much power behind (Bernanke's) words," said Johan Javeus, strategist at SEB in Stockholm.
For the dollar to reverse its long-term downtrend, China needs to take greater steps toward a more flexible currency regime, or the Fed has to signal rate hikes are imminent.
"Neither of those prerequisites have been fulfilled, so the controlled, grinding lower of the dollar will continue," Javeus said.
At 0835 GMT the dollar index .DXY =USD was little changed on the day at 74.95, after striking a 15-month low of 74.679 on Monday, and seemed to have found some support around the 74.75 level for now.
The euro EUR= slipped 0.2 percent to $1.4940, from above $1.5015 struck on Monday, weighed down early on by profit booking and options-related selling around $1.50.
It is also currently right in the middle of the $1.48-$1.51 range which traders say marks a large "double-no-touch" options structure that rolls off on Friday.
The dollar fell a third of a percent against the yen to 88.71 yen JPY=, its lowest in just over a month and drawing closer to October's eight-month low at 88.01 yen.
STERLING UP, AUSSIE DOWN
Richard Fisher, president of the Dallas Fed, said on Monday the dollar's decline so far has not been disorderly although the commitment to keep rates low for an extended period could create the potential for carry trades. [ID:nN16518637]
And Fed Vice Chairman Donald Kohn said the low interest rate policy was meant to encourage investors to move into riskier assets and there are no signs yet of an asset bubble building up in the United States. [ID:nNYS007538]
"While verbal support may moderate the pace of dollar decline, it is unlikely to affect a structural trend that reflects well-entrenched fundamentals," Citigroup strategists said in a note on Tuesday.
"Current dollar short positioning is not particularly stretched, and investors may continue to look to sell on rallies," they said.
Sterling was well supported after Bank of England policymaker Andrew Sentance said the UK economy is moving towards recovery and Italian press reported Italian chocolate maker Ferrero might be considering an offer with friendly investors for an alliance with Britain's Cadbury (CBRY.L).
The euro was last down 0.2 percent on the day at 88.80 pence EURGBP=.
The Aussie dollar AUD=D4 was the biggest loser among major currencies early on Tuesday, retreating from 15-month highs of $0.9407 to $0.9305, after minutes from the Reserve Bank of Australia's (RBA) last board meeting showed the pace of further tightening was uncertain. [nSYD415302].
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