Dollar Rises From 15-Month Low on Bernanke Talk

The dollar rebounded Tuesday from a 15-month low after Federal Reserve Chairman Ben Bernanke's rare comments on the currency spurred traders to trim long-term bets against the greenback.

Bernanke surprised investors on Monday when he said the central bank was "attentive to implications of changes in the value of the dollar," although he reiterated that interest rates would remain exceptionally low for an "extended period."

Some took his remarks on the dollar, which is usually the purview of Treasury, to mean the Fed fears depreciation could stoke inflation.

"The Fed probably recognizes the last thing it needs is for dollar weakness to spill into (higher) oil prices and force it to tighten policy prematurely," said Alan Ruskin, strategist at RBS Securities in Greenwich, Connecticut. "They don't want to give the idea that they're taking chances with the currency."

That helped drive investors to cut exposure to higher-yield currencies and assets and had the euro flirting with its biggest one-day decline against the greenback since August.

The euro was last down at near $1.48 after rising as high as $1.5015 on Monday, where traders said profit-taking and options-related selling capped its rise.

European Central Bank President Jean-Claude Trichet also spoke on currencies on Tuesday, reiterating his view that a strong dollar is in the U.S. interest and that the euro was never intended to be a reserve currency.

The dollar rose to about 89 yen , off a one-month low, and was up about 1 percent at near 1.01 Swiss francs .

The greenback also benefited as investors trimmed exposure to risk, with equity, oil and gold prices all lower, gaining sharply against commodity-linked currencies such as the Australian and Canadian dollars

Fed Rhetoric, Obama in China

The dollar is still in a long-term decline, analysts said, and weaker-than-expected U.S. inflation and industrial output data offered little reason for the Fed to rush into higher interest rates.

Bernanke's remarks were probably aimed more at "smoothing" the dollar's decline than reversing it, said Societe Generale strategist Peter Frank. He added that traders were "a little uncomfortable" being long of euros above $1.50.

Bernanke's comments on Monday came as U.S. President Barack Obama visited China, although few expect the trip to result in any near-term changes in Beijing's foreign exchange policy.

Chinese President Hu Jintao did not mention the yuan after meeting Obama, who only said he was pleased with China's commitment to move toward a more market-oriented exchange rate.

For the dollar to reverse its long-term downtrend, analysts say China needs to take steps toward a more flexible currency regime, or the Fed has to signal imminent rate hikes.

"Neither of those prerequisites have been fulfilled, so the controlled, grinding lower of the dollar will continue," said Johan Javeus, strategist at SEB in Stockholm.

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