Federal Reserve Chairman Ben Bernanke announced that he expects a strengthening of the U.S. dollar with the continued economic growth in 2010. There have been several recent indicator that the U.S. economy should be expected to continue its recovery in the upcoming year and that the dollar should accompany its ascent.
The value of the US dollar has fallen in recent months with investors no longer viewing it as a safe asset with the improvement of the global economy. Bernanke seeks to correct this, assuring that the central bank will begin monitoring its activity more closely. Still, he stresses that the recovery will be slow with the federal funds target rate remaining at record lows for the time being.
Bernanke sees the recovery of the greenback, not as something to be pursued in itself, but as a corollary to employment stimulation, price stability together and continued diligence toward strengthening the U.S economy. The Federal Reserve is "attentive to the implications of changes in the value of the dollar," he said an address to the Economic Club of New York.
Bernanke’s mention of the currency was surprising considering dollar policy is an issue traditionally dealt with by the U.S. Treasury rather than the Fed. His comments though are timely, after Chinese bank regulators who remarked that maintaining low interested rates and a weak dollar sent the wrong message to global markets.
Lifting the value of the dollar can only be achieved by an increase in rates enacted by the central bank. This would in turn, increase investor return on dollar assets and potentially threaten the economy’s recovery. Last week, a spike in the dollar put an end to six straight days of gains. When it fell again, markets rose to their previous rates.
"I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions," Bernanke said.
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