(Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 9 (Reuters) - The dollar bounced on
Wednesday, boosted by comments from a Federal Reserve official
saying a U.S. recession is not a certainty, as investors took
advantage of the currency's fall the previous session to buy it
at cheaper levels.
The dollar also received a boost from technical buying,
although a speech on the U.S. economy by Federal Reserve
chairman Ben Bernanke on Thursday, along with key central bank
meetings, confined the currency's price action to tight
ranges.
St. Louis Fed President William Poole said although there
are uncertainties in the economic outlook it was too soon to
tell if housing troubles would push the U.S. economy into
recession. For story, click on [].
Poole's remarks were in stark contrast to comments made by
Goldman Sachs, which forecast, in a note to clients, a U.S.
recession in 2008.For story, click on [].
"Poole's comments suggest to me that the Fed may just cut
by 25 basis points" and that should be positive for the dollar,
said Meg Browne, currency strategist at Brown Brothers Harriman
in New York.
Markets, however, are pricing in as much as an 80 percent
chance the Fed will slash interest rates by a hefty half-point
later this month to 3.75 percent. They see rates falling to 3
percent or lower by the end of the year.
The euro fell to a session low of $1.4647 <EUR=> against
the dollar after Poole's remarks. It last traded at $1.4669,
down 0.2 percent on the day.
"People are covering their short dollar positions ahead of
Bernanke," said Ken Landon, global currency strategist at JP
Morgan Chase in New York.
"No one really knows what he's going to say but I certainly
hope he wakes up and smells the coffee. He should realize that
the U.S. economy needs more stimulus," he added.
Currency investors also remained focused on the U.S. equity
market, typically a barometer of risk aversion. On Wednesday,
U.S. stocks were little changed, as recession worries hounded
the market. Prior to Wednesday's trading, the S&P 500 had
fallen more than 5 percent in 2008, its worst-ever start to a
year.
In early afternoon trading, the dollar was up 0.4 percent
against a basket of six major currencies at 76.372 <.DXY>, in
large part due to a 0.4 percent rise against the yen to 109.39
yen <JPY=>.
Traders are hesitant to take big currency bets ahead of
Bernanke's speech on Thursday.
It will be Bernanke's first public remarks on the economy
this year. Recent grim U.S. manufacturing and employment data
have intensified the threat of recession and likelihood the Fed
will cut rates by half a percentage point later this month.
Sterling, meanwhile, hit a record low against the euro and
a nine-month trough against the dollar as renewed fears about
the British retail sector stoked expectations of a UK interest
rate cut.
The euro was up half a percent against the British pound at
74.97 pence <EURGBP=>, having reached a record post-1999 launch
peak of 75.03 pence.
Sterling fell 0.8 percent against the dollar to $1.9562
<GBP=>, trading as low as $1.9555, the lowest level since late
March. The pound was hit after Marks & Spencer <MKS.L>,
Britain's largest clothing retailer, reported much
weaker-than-expected sales during the final three months of
last year.
UK rate futures have thus tilted toward pricing a 60
percent chance, from around 50-50 previously, that the Bank of
England will cut rates a quarter point to 5.25 percent on
Thursday.
The European Central Bank will also hold a monetary policy
meeting on Thursday, although markets expect the bank to hold
interest rates steady at 4.0 percent. Still, markets will be
closely watching comments from ECB President Jean-Claude
Trichet, given a spate of weak economic euro zone numbers.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Leslie
Adler)
