Greenback Bounces Back Versus Majors As Greek Problems Linger

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The dollar rebounded from losses in the previous session on Wednesday, with the world's de facto reserve currency finding continued support amid lingering questions about how the rest of Europe will deal with Greece's debt crisis.

Reports emerged on Tuesday indicating that European Union, led by Germany, is preparing a rescue package for Greece. However, officials have warned that no plan has been settled on, driving traders in search of a safe haven.

Meanwhile, written testimony from Federal Reserve Chairman Ben Bernanke outlined a strategy for unwinding the Fed's accommodative policy but provided no timetable for when it would do so, instead saying that the central bank would be ready when the time comes.

"Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding," Bernanke said in prepared remarks.

Traders also considered US trade deficit figures, which suggested that demand for imports is picking up as the economy fights back from the sever recession.

The Commerce Department said Wednesday that the trade deficit widened to $40.2 billion in December from $36.4 billion in November. The wider deficit came as a surprise to economists, who had expected the deficit to narrow to $35.8 billion. Rising imports outpaced modest growth in exports.

The dollar firmed up against most majors, rising to 1.3710 against the euro. With the advance, the buck moved closer to Friday's 8-month high of 1.3595.

The dollar also gained on the sterling after the Bank of England lowered U.K.'s economic outlook and forecast inflation to exceed 3% in January. The buck hit 1.5590, edging near a recent 8-month high of 1.5533.

At the same time, the dollar briefly rose back above 90 versus the yen, emerging from a tight weekly trading range.

The Commerce Department said Wednesday that the trade deficit widened to $40.2 billion in December from $36.4 billion in November. The wider deficit came as a surprise to economists, who had expected the deficit to narrow to $35.8 billion.

A notable increase in the value of imports contributed to the wider deficit, with the value of imports rising by 4.8 percent to $182.9 billion in December from $174.5 billion in November. The growth reflected a notable increase in imports of industrial supplies and materials.

(Market News Provided by RTTNews)