The dollar climbed on Wednesday following comments from a Federal Reserve official who said it would be a mistake to say a U.S. recession is at hand.
St. Louis Fed President William Poole said that while there are substantial uncertainties in the economic outlook it was too soon to tell if housing troubles would push the U.S. economy into recession.
Poole's comments were in stark contrast to remarks made by Goldman Sachs. In a note to clients, the largest U.S. investment bank forecast a U.S. recession in 2008.
His (Poole) comments suggest a notable lack of urgency or even concern from the Fed and this is negative for the prospects of a 50 basis point rate cut, which should help the dollar overall. said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
The dollar also received a boost from technical buying, although an upcoming speech by the Federal Reserve chief and key central bank meetings on Thursday confined the currency's price action to tight ranges.
Currency investors also remained focused on the U.S. equity market, typically a barometer of risk aversion. On Wednesday, U.S. stocks were little changed, with investors earlier buying shares better-placed to withstand an economic downturn.
Prior to Wednesday's trading, the S&P 500 had fallen more than 5 percent in 2008, its worst-ever start to a year.
The dollar is up but it is still within ranges. People are adjusting their positions until we get to tomorrow's key events, said Manfred Wolf, director of foreign exchange sales at HVB Bank in New York.
We have Bernanke speaking, and we have the Bank of England
and the European Central Bank meetings tomorrow. Until then, the market will be hesitant to reopen significant positions, he added.
It will be Bernanke's first public remarks on the economy this year. Recent grim U.S. manufacturing and employment data have intensified the threat of recession and likelihood the Fed will cut rates by half a percentage point later this month.
The BoE and ECB will further announce interest rate policy decisions on Thursday.
The euro fell to a session low of $1.4647 against the dollar after Poole's remarks. It last traded at $1.4673, down 0.2 percent on the day.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Theodore d'Afflisio)