The dollar tumbled to its lowest in two weeks against the euro and yen on Friday after a Federal Reserve official's comments raised doubts over how quickly the U.S. central bank would raise interest rates. Federal Reserve Board Governor Ben Bernanke said on Thursday the bank should be able to push interest rates up at a gradual pace, wrong footing many in the market who had bet on aggressive rate hikes to cool the fast-growing U.S. economy. With expected returns on U.S. deposits looking less appealing, investors bailed out of long dollar positions, pushing the greenback lower across the board. "Bernanke's comments have made people more cautious about aggressive U.S. rate hikes but positioning has also been behind the dollar's fall," said Shahab Jalinoos, senior currency strategist at ABN AMRO. "At the moment conviction is low and intra-day ranges are high." By 1030 GMT, the dollar was down 0.8 percent at 111.83 yen and over half a percent lower against the euro, at $1.2030 . Sterling also rose to a two-week high above $1.7950 as strong mortgage lending data bolstered market expectations that British interest rates would rise several more times over the course of the year. British mortgage lending rose 6.4 billion pounds in April, its fastest pace since the British Bankers' Association records began in 1997.
OPEC, G7 FOCUS
With no major U.S. data on the schedule, attention was focused on a weekend meeting of Group of Seven finance ministers in New York and an informal gathering of OPEC ministers in Amsterdam. Surging oil prices, which held near record highs, have weighed on growth-sensitive Asian and high-yielding currencies. But Tokyo's Nikkei stock average closed up nearly two percent on Friday, boosting the yen across the board. "Higher oil prices hurt equities and are bad for the Asian economy but the Nikkei actually sustained this week's gains," said Mansoor Mohi-uddin, chief currency strategist at UBS. "The Nikkei and dollar/yen are highly correlated at the moment." The IMF said it will likely raise its growth forecast for Japan when it issues its next global economic outlook, noting that Japan's recovery from a decade of stagnation was gathering pace. Ahead of the informal meeting in Amsterdam, UAE oil minister Obaid al-Nasseri said factors pushing oil prices higher were beyond the cartel's control.
OPEC ministers have said they will leave a formal decision on a production increase until their official meeting in Beirut on June 3. G7 ministers meeting in New York this weekend are likely to discuss the effect on the global economy of higher oil prices. Japanese Finance Minister Sadakazu Tanigaki said earlier interest rates may also be discussed.///