from FT.com:
In rare public comments on the dollar, Federal Reserve chairman Ben Bernanke said the US central bank was monitoring currency markets "closely" and will conduct policy in a way that will "help ensure that the dollar is strong".
But the dollar - after a brief spike - fell against other major currencies while commodities, stocks and bonds gained ground as investors focused on his comments on growth, prices and interest rates instead. Mr Bernanke said the recovery would gain traction in spite of "headwinds" from credit and unemployment, while inflation was likely to remain "subdued".
He said that the Fed still expected to keep rates near zero for an "extended period" - although he stressed that this was a conditional forecast, not a commitment.
The Fed chairman added that he did not think that new asset price bubbles were forming in the US in spite of the strong rebound in stocks and other risky assets.
In remarks apparently aimed at reassuring markets and governments that the central bank is not indifferent to the fate of the dollar, the Fed chairman said: "We are attentive to the implications of changes in the value of the dollar."
He added that the Fed "will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability" - and that doing so would support the value of the currency.
For the Fed chairman to comment on currencies is highly unusual. By convention, the US Treasury secretary is the sole US official who talks about the dollar.
The comments came amid growing international unease about the weakness in the dollar, which forms a backdrop to President Barack Obama's tour of Asia. Liu Mingkang, China's banking regulator, criticised the Fed at the weekend for fuelling the dollar carry-trade in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.
Mr Bernanke cited the dollar as one of four factors affecting US inflation, and linked it to a second factor - "the prices of oil and other commodities". In doing so, he indicated that the central bank would not focus exclusively on measures of core inflation that exclude food and energy prices.
"Notwithstanding significant cross-currents, inflation seems likely to remain subdued for some time," he said.
His message on asset prices was amplified by vice-chairman Don Kohn, who said one of the reasons the Fed was keeping rates near zero was "to induce investors to shift into riskier and longer-term assets".
But the dollar - after a brief spike - fell against other major currencies while commodities, stocks and bonds gained ground as investors focused on his comments on growth, prices and interest rates instead. Mr Bernanke said the recovery would gain traction in spite of "headwinds" from credit and unemployment, while inflation was likely to remain "subdued".
He said that the Fed still expected to keep rates near zero for an "extended period" - although he stressed that this was a conditional forecast, not a commitment.
The Fed chairman added that he did not think that new asset price bubbles were forming in the US in spite of the strong rebound in stocks and other risky assets.
In remarks apparently aimed at reassuring markets and governments that the central bank is not indifferent to the fate of the dollar, the Fed chairman said: "We are attentive to the implications of changes in the value of the dollar."
He added that the Fed "will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability" - and that doing so would support the value of the currency.
For the Fed chairman to comment on currencies is highly unusual. By convention, the US Treasury secretary is the sole US official who talks about the dollar.
The comments came amid growing international unease about the weakness in the dollar, which forms a backdrop to President Barack Obama's tour of Asia. Liu Mingkang, China's banking regulator, criticised the Fed at the weekend for fuelling the dollar carry-trade in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.
Mr Bernanke cited the dollar as one of four factors affecting US inflation, and linked it to a second factor - "the prices of oil and other commodities". In doing so, he indicated that the central bank would not focus exclusively on measures of core inflation that exclude food and energy prices.
"Notwithstanding significant cross-currents, inflation seems likely to remain subdued for some time," he said.
His message on asset prices was amplified by vice-chairman Don Kohn, who said one of the reasons the Fed was keeping rates near zero was "to induce investors to shift into riskier and longer-term assets".
