NEWS / Foreign Exchange

FOREX-Dollar weakens as markets await Fed speakers

(Updates prices, adds U.S. data, comment, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 18 - The dollar fell on profit-taking on Thursday, losing the previous session's gains, as traders monitored a slew of Federal Reserve speakers for clues on the path of U.S. monetary policy.

"We've got so many Fed speakers today ... and markets are waiting to hear what comes out of the Fed," said Lara Rhame, vice president and senior currency strategist at Credit Suisse in New York.

The dollar, which had surged across the board in a choppy and volatile session on Wednesday, extended its early losses on Thursday after U.S. Treasury Secretary John Snow said again that he was dissatisfied at the pace of China's efforts to further loosen up its currency regime.

Snow, who testified on international economic and exchange rate policies to the Senate Banking Committee, said "it is a matter of extreme urgency that China immediately increase flexibility on the yuan."

Fed Chairman Ben Bernanke also spoke on Thursday at a Chicago Fed conference on bank structure and competition but did comment on the U.S. economic outlook or interest rates.

"I think if anything, we're likely to get more confusion from the Fed. I don't think anything would be clarified," Credit Suisse's Rhame said.

The euro <EUR=> rose 0.4 percent against the dollar to $1.2781 while the dollar was a tad weaker against the yen at 110.85 yen <JPY=>.

Against the Swiss franc, the dollar was down 0.2 percent on the day at 1.2128 francs <CHF=>, while sterling rose 0.3 percent to $1.8879 <GBP=>.

Policymakers from around the world, most notably French Finance Minister Thierry Breton on Wednesday, have cranked up their rhetoric against dollar weakness after the currency's sell-off following a meeting of the Group of Seven economic powers last month.

The G7 called on emerging countries, especially China, to adopt more currency flexibility to fix global imbalances.

Also on Thursday, U.S. initial claims rose unexpectedly last week to a seasonally-adjusted 367,000 due to a partial government shutdown in Puerto Rico, a U.S. territory. For details, see [ID:nN18404970]. The data had little impact.

Analysts said that with Wednesday's higher inflation numbers suggesting the Fed could raise interest rates again at its next meeting in June, the dollar has become a two-way bet.

"I think the near-term dollar outlook is a little bit mixed now, although investors still prefer to try to sell the dollar on rallies from a strategic or long-term point of view," said Nick Bennenbroek, vice president for foreign exchange research at Brown Brothers Harriman in New York.

He also noted that the euro's technical picture has become more bearish, and he expects more follow-through selling in the next few sessions. (Additional reporting by Toni Vorobyova in London)