US dollar rises ahead of Bernanke speech, Fed minutes

An Indian man counts US dollar notes at a currency exchange shop in Mumbai. (AFP/Punit Paranjpe)

NEW YORK CITY: The US dollar Tuesday advanced against most major currencies as markets anticipated fresh insights on the Federal Reserve's stimulus tapering plans coming Wednesday.

Near 2200 GMT, the euro bought US$1.2787, down from US$1.2868 late Monday.

The US dollar rose to 101.11 yen compared with 100.99, while the euro dropped to 129.29 yen from 129.96.

The US dollar also gained on the British pound and the Swiss franc, with the pound sinking to US$1.4866 compared with US$1.4950 late Monday. The US dollar rose to 0.9730 Swiss franc from 0.9634.

The US dollar's gains came ahead of Wednesday's release of the minutes from the June Federal Open Market Committee (FOMC) policy meeting, and a speech by Fed Chairman Ben Bernanke in Boston.

Markets have for weeks intensely focused on when the Fed will taper its US$85 billion-a-month bond-buying program. In June, Bernanke signalled the program would likely be scaled down beginning in the next few months, if economic conditions support it.

"For the FOMC minutes to drive the dollar sharply higher, we need it to show significant support for tapering in September," said Kathy Lien, managing director of BK Asset Management.

Lien said the Fed's only remaining chances to scale back the policy are at the Fed's September or December meetings, where Bernanke will have the opportunity to explain the shift at a news conference.

"If the Fed believed that the economy could handle it, they would much rather taper for the first time in September than December because the December meeting is too close to the holidays," Lien said.

Meanwhile, the euro was hit by comments from Jorg Asmussen, a member of the executive board of the European Central Bank, who was quoted as saying the ECB may keep interest rates low for more than a year.

"The outlook for continued easy monetary policy from the ECB for over a year, contrasts with expectations for the Fed to begin removing policy accommodation, possibly as early as September," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

The euro was also buffeted by a ratings downgrade by Standard and Poor's of Italy based on its weak economic outlook. S&P has a "negative" outlook on the country.