NEW YORK (AFP) — The dollar gained ground on world currency markets Tuesday after Federal Reserve chairman Ben Bernanke warned about inflationary risks, causing traders to raise the odds of potential US interest rate hikes.
Bernanke said late Monday that the likelihood of a severe US economic slump has diminished, while "upside risks" to inflation were forcing the Fed to be more vigilant especially as oil prices remain near record highs around 131 dollars a barrel.
Analysts said Bernanke could be trying to talk-up the dollar's value in a bid to cool import-price inflation.
Around 2100 GMT, the euro was being quoted at 1.5464 dollars, down from 1.5642 dollars in New York late Monday.
Against the Japanese currency, the dollar rose to 107.38 yen from 106.30 yen a day earlier.
Despite the gains, the dollar remains suppressed against other currencies as it has fallen sharply in value over the past year as the US economy has been jolted by a nagging housing market slump and a related credit squeeze.
In an interview with the London-based Times newspaper published Tuesday, US President George W. Bush said: "We want the dollar to strengthen."
The dollar has fallen by around 15 percent against the euro and over 12 percent against the yen in the past year.
Aggressive rate cuts by the Fed in recent months to bolster economic growth have also weighed the currency down.
Its heavy decline has raised speculation that the US government might be forced to intervene in the market to help bolster the dollar.
According to the Times report, Bush made no suggestion that the government was preparing to intervene in the markets to strengthen the dollar.
Bush said he believed the "relative evaluations of economies will lead to that dollar strengthening."
"There has been a lot of speculation about the possibility of currency intervention in the US dollar," said Kathy Lien, a chief strategist at Forex Capital Markets.
"Since the economy is not strong enough to raise interest rates, the Federal Reserve and US Treasury hopes that an appreciation of the US dollar would help to curb inflation, but we believe that they will stop short of physical intervention," Lien said.
US Treasury Secretary Henry Paulson meanwhile said the United States and China will discuss the thorny issue of the Chinese yuan at bilateral economic talks next week.
In a speech in Washington, Paulson returned to the recurring US theme that China needs to allow the yuan, or renminbi (RMB), to appreciate more, and more quickly, to address its growing imbalances and develop its domestic market.
"Despite the progress that China has made, including almost 20 percent RMB appreciation against the dollar since July 2005, continued movement and greater flexibility are still needed," Paulson said.
"Exchange rate reform will be critical in meeting China's short- and medium-term challenges," he said.
In late New York trade, the dollar stood at 1.0419 Swiss francs, up from 1.0278.
The pound was quoted at 1.9542 dollars, down from 1.9751 on Monday.
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