Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. economy may fall into recession in the first half of 2008 but he was less pessimistic than anticipated, and investors toned down expectations for aggressive monetary easing.
The dollar did surrender some gains on Thursday after a U.S. Labor Department report showed the number of U.S. workers applying for unemployment benefit soared last week to the highest reading since September 2005, reinforcing fears that the U.S. economy has stalled.
However, the report failed to completely snuff out the overall positive sentiment that has surrounded the dollar in recent days even as lowered expectations for the U.S. March non-farm payrolls report on Friday.
Economists forecast a decline of 60,000 jobs for the month.
"We're seeing some weakness in the dollar as the markets are quite concerned with the surge in jobless claims and what it means for tomorrow's jobs report," Steven Butler, director of FX trading at Scotia Capital in Toronto, said in the immediate aftermath of the U.S. claims report.