The dollar turned up against major currencies on Friday as US Federal Reserve Chairman Ben Bernanke said he would “act as necessary” to control inflation at an economics conference and as oil retreated again. The British pound dropped to a 25-month low.
The euro fell to US$1.4775 in late New York trading from US$1.4877 late on Thursday.
At the economic symposium in Jackson, Wyoming, Bernanke said the “financial storm” in the US “has not yet subsided and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.”
He also said the inflation outlook is uncertain but will probably moderate later this year.
While the Fed can try to contain inflation by raising interest rates — which could also support the buck by making US investments more attractive — growing unemployment and concerns about economic growth may stop it from doing so.
Lower interest rates can undermine a currency as investors transfer their funds to assets with better returns.
“The dollar has taken back some of its losses. We’ve got information that indicates: ‘Look, no matter how bad things are going in the US, things look worse elsewhere,’” said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
The British pound, meanwhile, erased Thursday’s gains, dropping to US$1.8519 from US$1.8751. Earlier in the day, the pound had fallen as far as US$1.8503, its lowest point since July 2006.
On Friday, the British government said economic growth in the UK was flat in the second quarter, the first time the economy didn’t grow for almost 16 years. Economists said contraction in the third quarter is likely, meaning that Britain could be in a recession.
The Bank of England and the European Central Bank early this month left their interest rates unchanged at 5 percent and 4.25, respectively. The Fed cut its rates seven times from September to June. Its next meeting is on Sept. 16 and many economists believe the rate will remain steady.
The dollar also rose to ¥110.03 from ¥108.65 on Thursday.
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