* ECB may start asset purchases or cut rates further
* Sterling spikes after Bank of England report, UK jobs data
* Yen near two-month low vs dollar on higher U.S. bond
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 13 The dollar fell on Wednesday,
weighed down by comments from Federal Reserve officials this
week about the need to keep the U.S. central bank's economic
stimulus in place, and on caution ahead of a Senate confirmation
hearing on Thursday at which Fed Chair nominee Janet Yellen is
expected to speak.
The euro, however, stayed resilient, rising even although
European Central Bank Executive Board member Peter Praet said
the ECB could start buying assets or cut its deposit rate into
negative territory to trigger a rise in inflation to the central
In the United States, there is a growing sense that a
reduction in the Fed's stimulus may not be in the cards in the
near term. Atlanta Fed President Dennis Lockhart, seen as a
centrist in policy terms, and Minneapolis Fed President Narayana
Kocherlakota both suggested on Tuesday that the current state of
the U.S. economy still warrants aggressive monetary policy
action. Their comments pressured the dollar.
Added to that was the uncertainty surrounding Yellen on
Thursday. Most investors expect Yellen to be dovish and continue
the policies of current Fed Chairman Ben Bernanke.
"There's not a lot of conviction in the market's moves
today," said Vassili Serebriakov, currency strategist at BNP
Paribas in New York. "I am really surprised about the euro's
strength despite Praet's comments and this just goes to show you
going into the holiday season investors are not willing to push
the euro lower."
In the case of the dollar's weakness, Serebriakov said there
are several factors, including concerns of what Yellen could say
and mixed messages from Fed officials about tapering.
In early afternoon trading, the dollar index was down
0.3 percent, led by gains in the euro, which rose 0.2
percent to $1.3463.
The euro briefly inched lower after the ECB's Praet was
quoted as saying in the Wall Street Journal that "the
balance-sheet capacity of the central bank can also be used (to
fulfil the inflation mandate)," including outright asset
Praet also said the ECB still had room to move on interest
rates even after cutting the main rate to a record low of 0.25
percent last week and keeping the deposit rate at zero.
"A good amount of the bounce (in the dollar) came out on the
news" from Europe, said Andrew Dilz, foreign currency trader at
Tempus Inc in Washington, "If we get to a close of $1.3380, then
there is more room for dollar strength."
Sterling rallied after the Bank of England said there was a
chance British unemployment could fall to 7 percent in the
fourth quarter of 2014. Data published earlier
on Wednesday showed Britain's unemployment rate fell to 7.6
percent in the three months to September.
That kept alive speculation the UK central bank might raise
interest rates far earlier than it has flagged so far,
highlighting a divergence between Britain's monetary policy path
and that of both the European Central Bank and the Bank of
"The tone struck in the quarterly inflation report was that
of a more optimistic BoE, with Governor (Mark) Carney even
suggesting that it's hard to ignore that the 'glass is half
full'," said Chris Vecchio, currency analyst at DailyFX.com in
Sterling rose to $1.6046, rebounding from Tuesday's
two-month low of $1.5852. It gained after the
better-than-expected UK jobs report and a raised growth forecast
from the central bank. Sterling was last
up 0.8 percent at $1.6027.
Bank of England Governor Mark Carney, speaking on Channel 4
on Wednesday, said that the central bank "absolutely" be
prepared to raise rates before 2015 election if needed.
The dollar eased 0.3 percent to 99.32 yen, not far
from a two-month high of 99.79 struck on Tuesday. The U.S.
currency is up about 0.4 percent so far this week against the
yen, having drawn strength from rising U.S. bond yields.
Higher U.S. bond yields tend to favor the dollar by making
dollar-denominated debt more attractive to bond investors. The
10-year U.S. yield has risen since last Friday's
strong U.S. jobs data for October.