WORLD FOREX: Dollar Retreats As Bernanke Reaffirms Low Rates

The dollar retreated against the euro and the yen Wednesday after testimony from Federal Reserve Chairman Ben Bernanke pointed to continued low interest rates.

Market reaction to Bernanke's remarks intensified as his testimony before the House Financial Services Committee progressed, pushing the euro to a session high at $1.3627 and the dollar to a session low of Y89.76 against the yen.

"It's trading off Bernanke's comments," said C.J. Gavsie, managing director, corporate and institutional foreign exchange sales, at BMO Capital Markets in Toronto.

"It's all about the interest rate [outlook] as far as how soon rates will be on the move, and the market adjusting to Bernanke's comments," Gavsie said.

Wednesday morning, the euro is at $1.3616 from $1.3496 and at Y122.42 from Y121.93 late Tuesday, according to EBS via CQG. The dollar is at Y89.93 from Y90.18 and at CHF1.0748 from CHF1.0830, while the pound is at $1.5450 from $1.5440.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 80.427 from 80.877.

Bernanke said the U.S. economy still needs record-low interest rates for several months at least because the recovery from its deep recession is expected to be slow. The Fed chief also said the U.S. central bank is actively looking at what tools to use once the economy will need higher rates.

Outside Bernanke's testimony, the vacillation between a willingness to embrace risk and the desire to shun it remains the key driver for markets, analysts said.

"[Tuesday] we were in risk aversion mode, and [Wednesday] we've retraced some of that move," said Camilla Sutton, currency strategist at Scotia Capital.

The strength in the euro and other risk-sensitive currencies in morning trading reflected gains in U.S. stocks, a key barometer of investor sentiment towards risk.

Public-sector strikes in Greece, Spain and Portugal over budget cuts are once again putting the spotlight on the debt woes of the euro zone as markets wait to see if Greece will come to the bond markets for more money before the end of the week.

Greek officials have suggested the country's EUR5 billion bond offering can't be launched while the country is on strike, but it remains unclear whether Athens still plans to offer the bonds before the week is out.

-By Don Curren, Dow Jones Newswires; 416-306-2020; don.curren@dowjones.com