Fed seeking to ensure strong dollar: Bernanke
Published: Tuesday, 17 Nov 2009
CNNmoney - The Federal Reserve is striving for a strong dollar to ensure
financial stability, chairman Ben Bernanke has said in the face of growing
complaints by China and others about the sliding greenback.
Bernanke, in a New York speech, said the central bank was closely monitoring
exchange rates with the dollar having lost its gains from safe haven flows
during the height of the financial crisis.
"We are attentive to the implications of changes in the value of the dollar and
will continue to formulate policy to guard against risks to our dual mandate to
foster both maximum employment and price stability," the Federal Reserve chief
told the Economic Club of New York.
"Our commitment to our dual objectives, together with the underlying strengths
of the US economy, will help ensure that the dollar is strong and a source of
global financial stability."
Bernanke's comments come with the greenback under heavy pressure in foreign
exchange markets, raising complaints from around the globe, including China,
about the weak US currency about impacts on various economies.
Because of the Fed's near-zero interest rate policy, the dollar is being used
by investors for so-called carry trades in which they borrow greenbacks at low
rates to invest in higher-yielding assets such as commodities and bonds of
other governments. This increases pressure on the dollar.
Bernanke's comments caused a brief jump in the value of the greenback against
the euro, which has been rising the most against the dollar.
Analysts said Bernanke's comments would do little to help boost the dollar
unless the talk is backed by action on interest rates.
"The forex markets certainly took note of chairman Bernanke's dollar comments,"
said Vassili Serebriakov, currency strategist at Wells Fargo.
"Yet, in the absence of any notable shift on the policy front we doubt that
'official' jawboning can do much to reverse the current weak dollar trend."
Joseph Brusuelas at Moody's Economy.com said Bernanke's comments were carefully
worded to avoid any promise of direct support for the greenback.
"Bernanke stopped short of rhetorically intervening in foreign exchange
markets," Brusuelas said.
The dollar's weakness is bad news for many Asian exporters, which are
struggling to maintain their competitiveness, particularly against Chinese
rivals benefiting from the relative stability of the yuan.
European officials have also complained about the weakening dollar.
There is concern in Europe that Washington is seeking a short-term boost to its
own exports and a long-term reduction in the value of government and private
debts, much of which is held in China.
The European Commission contends that appreciation in euro value against the
dollar of 10 percent in real terms would see exports fall by around 2.5 percent
within two years.
Eurogroup chief Jean-Claude Juncker warned last month that "if the euro's
direction were to continue to move along the lines of recent weeks, there is a
risk... that it could slow economic recovery in Europe."
