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Forex - Dollar gets boost as Bernanke signals end to rate cuts
LONDON (Thomson Financial) - The dollar got a boost after Federal Reserve Chairman Ben Bernanke startled markets by making pointed comments on the inflationary impact of the dollar's recent falls. Bernanke said downward pressure on the dollar 'have contributed to the unwelcome rise in import prices and consumer price inflation.' He went on to add that the Fed is 'attentive to the implications of changes in the value of the dollar for inflation and inflation expectations' and that rate setters will set policy to guard against inflation, 'including the risk of an erosion in longer-term inflation expectations.' The dollar has been on a multi-year down trend against its main rival, the euro, which saw it drop from parity late in 2002 to levels above $1.60 this year. Ashraf Laidi at CMC Markets said Bernanke's remarks on the inflationary repercussions of the weak dollar are 'a relatively rare explicit reference' and an 'emphasis to support the currency.' 'These remarks are interpreted as a major stepping up of inflationary vigilance by the Fed Chairman, which should play in the favour of the US dollar into the rest of the week,' he added. He believes the comments may be the start of something new. 'These remarks may also be part of the much talked about coordinated steps between U.S. and Europe to bring about stability in the U.S. currency,' said Laidi. The euro slipped to $1.5461 from just a shade under $1.56 on the news. Inflation concerns are dominating markets at present, what with sky high oil and commodity prices along with rising inflation expectations. Against this backdrop, U.S. rate setters are widely predicted to stay away from delivering any more rate cuts. The Fed is almost universally expected to hold rates steady at its next meeting on June 24-25, having lowered interest rates steadily to 2.00 percent from 5.25 percent since late 2007. The late development erased the euro's early gains after an upgrade to euro zone GDP growth. First quarter GDP growth in the euro zone was unexpectedly revised up to 0.8 percent from the initial estimate of 0.7 percent. Jonathon Loynes, chief European economist at Capital Economics said the data 'provides further evidence that the region is still performing well compared to the United States'. Elsewhere, the pound recovered from the daily low hit against the euro following Tuesday's very weak survey on UK construction activity. The Chartered Institute of Purchasing and Supply said the purchasing managers' index for the construction sector fell to 43.9 in May, the lowest level since the series began in April 1997, from 46.1 in April. London 1417 GMT London 1211 GMT U.S. dollar yen 105.32 up from 104.54 Swiss franc 1.0462 up from 1.0331 Euro U.S. dollar 1.5434 down from 1.5590 yen 162.54 down from 162.98 Swiss franc 1.6152 up from 1.6109 pound 0.7867 down from 0.7908 Pound U.S. dollar 1.9610 down from 1.9710 yen 206.55 up from 206.01 Swiss franc 2.0542 up from 2.0369 Australian dollar U.S. dollar 0.9515 down from 0.9577 pound 0.4851 down from 0.4858 yen 100.23 up from 100.16 [email][email protected][/email] ss/ra COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.