Fed’s Bernanke dampens optimism - Emirates24|7

Fed’s Bernanke dampens optimism


The dollar remained pressured on Thursday after Federal Reserve Chairman Ben Bernanke said the US economy may fall into recession in the first half of 2008, cooling hopes that the worst of the credit crisis is over.

Bernanke also told a congressional committee on Wednesday that he expects US growth to recover in the second half of the year, supported by monetary and fiscal policies already in place.

His comments reinforced market views that the Fed will cut interest rates further at its meeting later this month, traders said.

"The comments are definitely not dollar-positive and cooled optimism about the credit problems which has been spreading recently," said a senior dealer at a European bank.

"Bernanke's economic assessment is gloomy and sends a reminder that a recovery in the market's mood has been a bit too much," he said. While the dollar's bearish outlook intact, its fall may be contained in the near term by various factors such as signs of investors returning to carry trades, Japanese buying of foreign assets at the start of the new business year and short-covering of recent deep dollar selling, he said.

The euro was slightly lower at $1.5672 compared with around $1.5685 in late Wednesday US trade. Bernanke's comments lifted the euro 0.5 per cent on Wednesday.

The dollar was steady at 1.0087 Swiss francs after falling 0.4 per cent on Bernanke's comments, while sterling kept its 0.6 per cent gain to trade around $1.9870.
The dollar was steady against the yen at 102.30

Bernanke's remarks came at a time when traders said sentiment had been improving over the credit market woes, after Lehman Brothers raised $4 billion on Tuesday to shore up its balance sheet.

Traders are now eyeing Friday's US employment report, which is expected to show the economy shed jobs in March for a third straight month.

But a report on Wednesday from ADP Employer Services surprised markets by showing the economy added 8,000 private-sector jobs in March. Economists polled by Reuters had expected a 48,000 job loss.

The Fed has cut its benchmark interest rate six times since September, bringing it to 2.25 per cent from 5.25 per cent, while the European Central Bank has held rates firm at 4 per cent to fend off euro zone inflation, which hit a record high in March. (Reuters)