Dollar Is Little Changed Before Bernanke's Speech on Inflation

The dollar was little changed versus the yen and euro before a speech on inflation by Federal Reserve Chairman Ben. S. Bernanke tomorrow when he may say rising prices are still a concern.

The dollar has lost 1.3 percent versus the euro since the Fed said a moderation in inflation hasn't been ``convincingly demonstrated'' at a June 28 meeting when it left interest rates at 5.25 percent. The yen might decline as the Bank of Japan is forecast to leave borrowing costs at 0.5 percent this week, the lowest among major economies.

``Bernanke will continue to mimic prior statements in his speech tomorrow,'' said Mark Meadows, strategist at currency- trading company Tempus Consulting Inc. in Washington.

The dollar was little changed at $1.3622 versus the euro, from $1.3627 on July 6, at 12:25 p.m. in New York. It bought 123.32 yen, from 123.34. The Japanese currency was little changed at 168 versus the euro from 168.05, after earlier reaching 168.51, the weakest on record. The yen earlier dropped to 106.30 against the Australian dollar, the lowest since 1991.

Bernanke will speak at the National Bureau of Economic Research Monetary Economics Summer Institute in Cambridge, Massachusetts. It will be the first time he's spoken publicly on inflation since the rate dropped within the 1 percent to 2 percent comfort zone he identified before becoming head of the U.S. central bank.

`Vigilant on Inflation'

``Bernanke will suggest the Fed needs to be vigilant on inflation,'' said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal.

The core personal consumption expenditure index, the Fed's preferred gauge of inflation, was 1.9 percent during the 12 months ended in May, from 2 percent the prior month, according to data released June 29. That was the first time it was below 2 percent since March 2004.

The BOJ is set to release its rate decision on July 12 in Tokyo. None of the 43 economists surveyed by Bloomberg forecast a change.

Japan's borrowing costs encourage carry trades in which investors seek higher yielding returns overseas. The European Central Bank's benchmark interest rate is 4 percent, Australia's is 6.25 percent and South Africa's is 9.5 percent.

`Risk to Growth'

``The BOJ may find it difficult to raise rates,'' said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York, which has $50 billion in assets. ``It's a risk to growth, and you don't want to raise rates in a fragile economy.''

The yen pared some declines as Japan's machinery orders, a key indicator of corporate spending plans, rose a second month during May.

The euro was supported by a report that showed German industrial production gained 1.9 percent in May, after a revised drop of 2.1 percent in April.

The figures ``confirm that the European economy is strong and that the ECB will raise interest rates further,'' said Marcus Hettinger. The euro may rise to $1.3670 this week, where sell orders are clustered, he said.

The U.K. pound gained 0.3 percent to $2.0164, the biggest climb in a week, after a government report showed factory-gate prices rose for a seventh month in June, adding to the case for further interest-rate increases.

The Bank of England last week raised its benchmark rate for a fifth time in the past 12 months to 5.75 percent.

The Canadian dollar gained to a 30-year high against its U.S. counterpart on speculation Canada's central bank will raise interest rates tomorrow a quarter-percentage point to 4.5 percent. That follows the stronger-than-forecast June jobs report on July 6. Canada's currency was at 95.41 U.S. cents, from 95.28 U.S. cents on July 6. It earlier reached 95.74 U.S. cents.

source:bloomberg.com