INSTANT VIEW: Fed's Bernanke says watching dollar closely

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke said on Monday that the U.S. central bank was monitoring the declining value of the dollar closely, saying the Fed was committed to both jobs growth and price stability.

KEY POINTS: * He said there were other factors helping to restrain inflation in the United States, and he repeated that the Fed is likely to keep interest rates exceptionally low for "an extended period."

* In a rare commentary on the value of the dollar, Bernanke drew a link between its current weakness and inflation risks.

* "We are attentive to implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he said in remarks prepared for delivery to the Economic Club of New York.

* Fed officials usually defer to the Treasury secretary on issues relating to the dollar's value, but Bernanke noted that the currency's recent decline had been a factor helping to push commodity prices higher.

COMMENTS:

CAMILLA SUTTON, SENIOR CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:

"He allocated a whole paragraph in his speech to foreign exchange, which is unusual and really highlights that there must be a tremendous pressure there. They clearly have the dollar in view, even though that's not part of their mandate, and markets are buying the dollar on the back of that. But for me, I don't think it changes the outlook for monetary policy, and our call is still that they won't raise rates until the third quarter of 2010."

JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY:

"He is talking out of both sides of his mouth. He's jaw-boning like he always does. But he is telling you that the economy is still weak and that the stimulus will continue.

"The question is how low will the dollar go and at what point will the equity market wake up and say oh my God, we've got major economic problems still, why am I inflating this at 16x forward earnings?"

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, WELLS FARGO, NEW YORK:

"Clearly more prominent than normal by the Fed chairman, which is attracting some attention. Usually in the United States, the currency policy is the domain of the U.S. Treasury. That said, Bernanke has in the past spoken specifically on the dollar.

"It might not necessarily have any policy implications, but I think it's clear that the Fed has at least noted recent movements in the dollar and that in itself is probably significant enough for the market in the very short term."

TOM SOWANICK, CO-PRESIDENT AND CHIEF INVESTMENT OFFICER, OMNIVEST GROUP LLC, PRINCETON, NEW JERSEY:

"I think that the press is a bit overextended about his comments on the dollar. I think what Bernanke means is that monetary policy will remain accommodative in order to ensure stable economic growth which should support the dollar. He did say that he is watching the weak dollar, but again I think that it is that comment that he will share with the administration for guidance about deficit spending."

WILLIAM LARKIN, PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, BOSTON:

"He talked about modest recovery and weak jobs growth into next year. That suggests to me that inflation is not an issue in which case full employment will be the focus, which suggests that interest rates will remain low."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:

"We're surprised that he would mention anything about the dollar but clearly he felt he needed to under the circumstances. He's indicated the Fed's mandate is to help keep the dollar strong and that he's following the dollar's decline closely. Still, Bernanke's remarks indicate that the Fed is unlikely to factor in the dollar's performance regarding the timing of policy decisions. I have long felt the Fed was likely to move sooner rather than later, not only to stem the dollar decline, but also to limit a growing asset price bubble. But it doesn't appear yet that inflation or asset price bubbles are going to be a major factor in the timing of a Fed move."

TODD SCHOENBERGER, MANAGING DIRECTOR, LANDCOLT TRADING INC., SAN ANTONIO, TEXAS:

"He is clearly hedging on how unemployment is much too high. He is setting up expectations of a less robust recovery. He's providing caution."

"Now he's feeling that the further the dollar declines, the more challenging it is for the U.S. to recover. This is a reason for concern."

MARKET REACTION: STOCKS: U.S. stocks pare gains

BONDS: U.S. Treasury debt prices add to gains

DOLLAR: U.S. dollar pares losses