Dollar slips vs euro after Fed chief comment

April 02, 2011 | 11:55
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The dollar slipped against the euro Friday after a top Federal Reserve official suggested the central bank was not yet ready to stop priming the economy despite a positive US jobs report.
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The European single currency fetched $1.4225 around 2100 GMT, up from $1.4155 at the same time Thursday.

The euro, benefiting from expectations of a European Central Bank interest rate hike next week, also rose to 119.49 yen.

The dollar also gained against the Japanese currency. The greenback rose to 84.00 yen from 83.20 yen on Thursday, after earlier hitting a six-month high at 84.73 yen.

The US economy added 216,000 jobs in March, driving the unemployment rate to a two-year low of 8.8 per cent, the Labor Department reported.

The positive sign of a recovering labor market initially pushed the dollar sharply higher on expectations the Fed would finally raise interest rates from historical lows held since December 2008.

But the dollar weakened after a speech by William Dudley, president of the Federal Reserve Bank of New York, who warned against moving prematurely to tighten monetary policy.

Dudley insisted the economic recovery remained "tenuous" and noted the unemployment rate "is much too high."

"We are still very far away from achieving our dual mandate of maximum sustainable employment and price stability," Dudley said.

A higher interest rate makes a currency more attractive because it increases the return on investment.

Last month the Federal Open Market Committee, headed by Fed chairman Ben Bernanke, kept ultra-low interest rates and $600 billion in stimulus spending in place to bolster the recovery.

"We’ve been hearing a lot of very hawkish comments" from some Fed officials in recent days, said Mary Nicola at BNP Paribas.

"A lot of people see Dudley as being close to Bernanke," she added.

Western central banks are looking to raise their interest rates from record low levels as rising commodity prices fuel global inflation.

The European Central Bank is widely expected to hike its borrowing costs from a record low of 1.0 per cent next Thursday, while experts believe the Bank of England may hike in the coming months.

In late New York trade, the pound was trading at $1.6109, down from $1.6027 late Thursday.

The dollar rose to 0.9238 Swiss francs from 0.9194.

AFP

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