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The dollar fell against most of its major counterparts as Federal Reserve Chairman Ben S. Bernanke said rising oil and commodity prices probably won’t boost broader inflation and interest rates will likely remain low.
Experience with price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told the Senate Banking Committee in his semiannual monetary policy testimony.
Bernanke reiterated the Fed’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation.”
“The prepared comments aren’t nearly as dovish as we’ve heard in the past,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “The Federal Reserve is still looking beyond the temporary impact of inflation and oil prices, which is not something we can say for central banks in Europe.”
The euro gained versus the dollar as the European Commission raised its growth forecast and said inflation may stay above the European Central Bank’s limit for most of 2011.
“The market is pretty focused on inflation and central bank reaction,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “Unless we can see short-term rates heading higher in anticipation of Fed reaction, the dollar could trend lower.”
The dollar briefly erased losses against the euro after the Institute for Supply Management’s factory index increased to 61.4. from 60.8 in February, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth.
The ISM’s measure of new orders in the U.S. rose in February to 68, the highest since January 2004, from 67.8. The employment gauge jumped to 64.5, the highest since January 1973, from 61.7 in the prior month.
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