Dollar Rising

The dollar moved away from a recent 7-week low versus the euro and firmed against other currencies on Tuesday after Federal Reserve Chairman Ben Bernanke offered upbeat comments on the US economy. Bernanke said late on Monday the economy should keep growing at a brisk pace even if the housing market slows, but the dollar failed to receive a significant boost as Bernanke offered few new clues on how much more the Fed would raise rates.

US producer price index figures, due tomorrow, are expected to be down 0.2% on the month in Feburary. The dollar was up around a quarter percent at $1.2137 per euro, off last week’s seven-week low of $1.2207. It was up 0.3 percent at 1.2956 Swiss francs and up 0.4 percent at 116.75 yen. Trading volumes in Asia were thinner than usual with Tokyo markets closed for the Spring equinox holiday. The New Zealand dollar extended recent losses to hit a 21-month low of US$0.6210, bringing its loss this year to nearly 9%.

The yield curve on U.S. government debt inverted on Tuesday, with yields on two-year notes rising above those of longer-maturity debt in the aftermath of Bernanke's speech. The yield on the benchmark 2-year Treasury note rose 8 basis points to 4.726%. The yield on the benchmark 10-year note added 6 basis points to 4.713%. The price of the 10-year note fell 7/16 point to 98 5/16.

The Fed is largely expected to raise interest rates by 25 basis points again from the current 4.5% when it meets next week, but investors are now less certain rates will move to 5% in May following benign inflation data last week.