Dollar tumbles after dovish Bernanke trip up bulls

US dollar falls after Federal Reserve chairman's comments raise expectations stimulus package may be reduced as early as September

The dollar tumbled on Thursday after dovish comments from Federal Reserve Chairman Ben Bernanke prompted markets to reassess expectations that the Fed would start to reduce stimulus as early as September.
Bernanke's comment came during early Asian trading hours, when market liquidity is at its lowest, triggering a rapid barrage of stop-loss selling of the dollar, exaggerating price action, traders said.
The Fed chief said the U.S. central bank would continue to pursue an accommodative monetary policy as inflation remained low and the unemployment rate might be understating the weakness of the labour market.
"The dollar's latest rally was started by nothing other than Bernanke's comments last month (that the Fed could reduce stimulus.) Few people would have thought he would suddenly turn dovish," said a trader at a Japanese bank.
Before Bernanke's comments, markets were already trying to come to terms with the minutes from the Fed's June policy meeting which showed many board members indicated further improvement in the labour market outlook would be required to slow the pace of asset purchases.
A majority of market players were expecting the Fed will likely start to slow its monthly asset purchases of $85 billion per month by September this year.
The euro roared to a three-week high of $1.32085 at one stage, up more than 3 percent from Wednesday's low of $1.2765. It easily spiked above $1.3010, the 38.2 percent retracement of its June-July fall, then $1.3167, the 61.8 percent level.
The euro last traded at $1.3121, up 1.2 percent on the day.
The dollar also fell against the yen, dropping to a two-week low of 98.20 yen, though it held above a key support from the cloud bottom on the daily Ichimoku charts at 98.155.
It last stood at 98.62 yen, a fall of 1.1 percent from late U.S. levels.
The dollar extended losses after the Bank of Japan kept its policy on hold even though the outcome was widely expected as traders were nervous after the greenback's slump earlier.
The currency pair is flirting with another important chart point, the tenkan line on weekly Ichimoku charts at 98.75, with a weekly close above that level seen as a sign the dollar is retaining its upward bias.
The U.S. currency also fell 1.4 percent against the Swiss franc to 0.9452 franc, hitting a two-week low of 0.9405 franc at one point.
Still, many traders said that it was premature to call an end to the dollar's uptrend, especially as they expect the U.S. economy is likely to continue to outperform many other developed economies.
"Bernanke was more dovish than expected. Nonetheless, he was also repeating what he has been saying all along and the market may have over-reacted," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
Commodity currencies also jumped against the dollar, with the Australian dollar climbing as high as $0.9300 to pull further away from a 34-month trough of $0.9036 plumbed just last week.
The Aussie was also helped by data showing sharp rise in Australian employment in June, even as the jobless rate hit its highest since 2009.
The Aussie was last at $0.9293, up 0.9 percent from late U.S. levels.
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