WORLD FOREX: Dollar Makes Comeback After Two Days Of Losses

By Dan Molinski

OF DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar is rebounding early Friday in New York after two days of losses that were sparked by the Federal Reserve's aggressive plan to inject liquidity into the system and revive the economy.

The euro dipped to as low as $1.3538 Friday, down from a 10-week high of $1.3739 reached Thursday. Against the yen, the dollar is also performing well, reaching as high as Y95.72 after hitting a nearly one-month low of Y93.55 Thursday.

But analysts chalk up the dollar's gains Friday mostly to profit-taking and say further dollar weakness is expected over the coming days, mostly as a result of the Fed's liquidity-injection efforts. The U.S. central bank noted plans Wednesday pumping up to $1.15 trillion into the system through the purchase of $300 billion in long-term Treasury bonds during the next six months, and other measures.

That announcement sparked a temporary rally in U.S. stock markets, which drove investors away from the dollar, which has been sought out for months as a safe haven. But the stock market rally hasn't persisted and that's helping to give the dollar support again.

There is no major U.S. economic data out Friday, but traders are likely to keep their eye on comments by Fed Chairman Ben Bernanke, who's set to speak about the financial crisis around noon EDT in Phoenix.

Friday morning in New York, the euro was at $1.3597 from $1.3678 late Thursday, and the dollar was at Y95.58 from Y94.41, according to EBS. The euro was at Y129.92 from Y129.14. The U.K. pound was at $1.4446 from $1.4518. The dollar was at CHF1.1248 from CHF1.1228 Thursday.

Meantime, the Canadian dollar is slightly higher early Friday, drawing some strength from the recent resurgence in oil and other commodity prices, but otherwise remaining subject to broader U.S. dollar moves and wavering levels of risk aversion as reflected in equity market developments.

The Canadian currency showed little response to news of a surprise 1.9% jump in Canadian retail sales in January, and is generally seen as headed for a period of consolidation after its recent sharp upward move.

Currency strategist Jacqui Douglas of TD Securities in Toronto said that the U.S.-Canada dollar pair is currently trying "to find some stable footing within the newly established C$1.2200-C$1.2600 range."

Early Friday, the dollar is at C$1.2347, from C$1.2373 late Thursday.