* Dollar hits three-month low vs basket of currencies
* Euro rallies to eight-week high, ECB meets next week
* Bernanke: Fed to act as needed, labor market a 'grave'
By Wanfeng Zhou
NEW YORK, Aug 31 The dollar fell to a
three-month low against major currencies on Friday after Federal
Reserve Chairman Ben Bernanke said high unemployment is "a grave
concern," reinforcing expectations for further monetary easing
to revive growth.
Bernanke, speaking at the Kansas City Fed's annual symposium
in Jackson Hole, Wyoming, said the U.S. economy faced "daunting"
challenges and that the Fed would act as needed to strengthen
the recovery. But he did not explicitly signal an imminent move.
The dollar had briefly pared losses against the euro and yen
immediately after Bernanke spoke as he disappointed some
investors who had hoped for a clear signal of near-term easing,
before resuming declines to hit session lows.
"The only thing that sticks out is that the 'grave' concern
about the labor market, which is a little stronger than the
language used in the past," said Win Thin, global head of
emerging market strategy at Brown Brother Harriman in New York.
"That will make next week's payrolls report even more
The August payrolls report is due next Friday, days before
the next Federal Open Market Committee, which meets on Sept.
12-13. Many analysts reckon there's a strong possibility the Fed
will announce a third round of bond-buying at the meeting.
Hopes for near-term action had grown since Fed meeting
minutes last week showed policymakers could act "fairly soon,"
but investors have since pared back expectations that a new
round of bond purchases is coming in September.
"The very important thing is that his comments kept the view
of eventual easing by the Federal Reserve intact," said Nick
Bennenbroek, head of currency strategy at Wells Fargo Bank in
The dollar index, which measures the dollar's value
against a basket of currencies, fell 0.6 percent to 81.247,
having hit 80.964, its weakest since May 22.
The euro rose as high as $1.2636 on Reuters data, the
strongest since early July. It was last up 0.6 percent at
The euro zone common currency also drew support from
month-end flows, Middle East buying, and expectations the
European Central Bank will announce clear steps to tackle the
euro zone debt crisis at its policy meeting next week.
The ECB meets next Thursday and hopes of bond-buying have
grown, although investors will likely wait to see whether the
ECB provides enough details before buying euros aggressively.
France's member on the ECB executive board, Benoit Coeure,
appeared to take a softer line than his German colleague on
conditions for the central bank buying sovereign debt, saying on
Friday that simply supporting the EU's rescue funds would
German central bank chief Jens Weidmann's reported threat to
resign has piled pressure on ECB President Mario Draghi to
assuage his opposition to a new bond-buying plan.
"Ahead of the ECB meeting next week the market expectation
still seems to be that President Draghi will deliver -- that is,
he will outline a credible plan to save the euro zone next
Thursday," Citigroup wrote to clients.
"We have repeatedly expressed our skepticism that the ECB
would live up to the elevated market expectations. Even if there
is a concrete plan on how to implement the conditional bond
purchases program, important questions will likely remain."
The dollar fell to a session trough of 78.18 yen, the
weakest in more than two weeks. It was last at 78.29, down 0.4
percent on the day.
On the week, the euro rose about 0.5 percent against the
dollar, its third straight week of gains. The dollar fell about
0.5 percent against the yen, it second week of declines.