Dollar rebounds from six-week low vs euro

By Wanfeng Zhou

NEW YORK (Reuters) - The dollar rebounded from six-week lows against the euro on Tuesday after Federal Reserve Chairman Ben Bernanke gave a cautious assessment on the U.S. economy, reviving the greenback's safe-haven appeal.

A jittery stock market also damped down investor appetite for risk, driving up the yen while pushing down higher-yielding commodity currencies such as the Australian and New Zealand dollars.

Bernanke, in his testimony before the U.S. House Financial Services Committee, said unemployment was likely to remain high into 2011, which he warned could undermine consumer confidence and derail a recovery. He also said benchmark U.S. interest rates will stay low for a long time and expressed concern about the U.S. budget deficit.

"His comments have been construed as reasonably dovish, generally advising caution on the timing and extent of the economic recovery," said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston, adding that "has led to a slight pullback in risk appetite."

In late New York trading, the euro fell 0.2 percent to $1.4199, having climbed to six-week highs earlier in the day at $1.4277, according to Reuters data.

The dollar fell 0.6 percent to 93.69 yen while the euro was down 0.8 percent at 132.97 yen.

Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut, said Bernanke's cautious tone threw the dollar a lifeline.

"His bottom-line assessment that the U.S. economy is still nowhere near ready for a policy reversal flew in the face of equity market investors who have been busily discounting a return to growth," he said.

The ICE futures' dollar index .DXY, a measure of the greenback's value against a basket of six other major currencies, was little changed at 78.889 after falling to 78.591, its lowest since early June.

RISK RALLY RETREATS

Risk appetite had improved over the last few sessions after a string of stronger-than-expected U.S. corporate earnings for the second quarter boosted optimism about the economy.

Heavy equipment maker Caterpillar (CAT.N), for instance, posted a second-quarter profit and gave an upbeat earnings outlook for 2009. But it later warned that the third quarter would be tough for sales and production and that it could report a loss for that period.

Some analysts, however, sounded a note of caution on recent U.S. earnings.

"A lot of the earnings generated in the second quarter were due to cost-cutting measures, mainly on the employment side," said Jacob Oubina, senior currency strategist at Forex.com in Bedminster, New Jersey. "The sustainability of the beats as we head into the fourth quarter is therefore questionable."

The U.S. dollar, meanwhile, retraced losses against the Canadian dollar to trade little changed at C$1.1057.