* Bernanke testimony offsets dollar weakness
* Surprise China rate cut boosts some riskier currencies
NEW YORK, June 7 The euro surrendered all gains
to traded little changed against the dollar o n Thursday after
Federal Reserve Chairman Ben Bernanke said the U.S. central bank
was ready to shield the economy but offered few hints that
further monetary stimulus was imminent.
The news caused a sharp reversal in the euro, which earlier
had traded to its highest since May after China's central bank
cut benchmark rates to support growth in the world's
The U.S. dollar had been hindered by expectations for more
easing by the Federal Reserve, expectations that were countered
by Bernanke's almost sanguine tone, which indicated the Fed was
far from crisis mode..
"I don't think he is definitely saying that QE3 is on the
way," said Fabian Eliasson, vice president of currency sales,
Mizuho Corporate Bank in New York. "He's saying what he has said
before, reassuring people that they will act if things
deteriorate further. In other words, they are there if needed,
but they don't feel they are needed yet."
The euro was last at $1.2568, little changed from the
"Despite economic difficulties in Europe, the demand for
U.S. exports has held up well," Bernanke told Congress.
Earlier the euro had climbed to a session high of $1.2625,
using Reuters data, its highest level since May 23, before
surrendering gains. Traders had earlier cited resistance around
The euro also climbed to its highest since May 23 against
the yen at 100.61 yen before surrendering some gains
to trade at 99.93 yen, up 0.4 percent.
Until Bernanke, trading had been influenced by China's
delivery of twin surprises on interest rates, cutting borrowing
costs to combat faltering growth while giving banks additional
flexibility to set deposit rates. [ID:nL3E8H76KL}.
"Rate cuts in China serve to reduce China's exposure to
global weakness," said Douglas Borthwick, managing director of
Faros Trading in Stamford, Connecticut. "Rate cuts in
combination with a stimulus program - still to be announced,
should shelter Asia somewhat from global weakness, and should
help keep a bid to Asian growth and currencies."
Decent demand at a Spanish bond auction and expectations
that European policymakers may take further steps to support the
global economy also led to demand for perceived riskier
currencies such as the Australian dollar, which rose to a
The global economy has floundered in recent weeks, and risks
to growth have mounted on concerns about a possible Greek exit
from the euro zone and the fragility of the Spanish banking
system, putting pressure on euro zone politicians and global
central banks to come up with a credible policy response.
Speculation that Spain could become the fourth euro zone
country to need an international bailout prompted investors to
sell the euro heavily last week, although European sources have
said Germany and European Union officials are urgently exploring
ways to support the country's stricken banks.
Many market players were already expecting euro gains to be
limited. A Reuters poll suggested the euro was unlikely to
recoup recent steep losses against the dollar in the next 12
"The euro can bounce up to $1.2630 but then it will be a
sell on rallies as Europe's problems are ... considerable," said
Stuart Frost, head of Absolute Returns and Currency at fund
manager RWC Partners in London.
The dollar managed to outperform the yen which was hit
broadly as risk appetite improved and also dampened by recent
threats from Japanese authorities to curb its strength.
The dollar was 0.5 percent higher at 79.61 yen after
posting a session peak of 79.78, also the highest since May 23
using Reuters data, well off a 3-1/2 month trough set on June 1.
The dollar was also bolstered against the yen by a report
showing the number of Americans lining up for new jobless
benefits fell last week for the first time since April, a
reminder that the wounded labor market is still slowly healing.
"The number was very close to expectations," said Vassili
Serebriakov, senior currency strategist at Wells Fargo in New
York. "We've had a deterioration in the last few months and now
it looks like claims are plateauing."