Dollar Rises After Bernanke Says Fed Ready to ‘Tighten’ Policy

Oct. 9 (Bloomberg) -- The dollar rose against the yen for the first time in five days after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank is ready to “tighten” monetary policy, increasing the appeal of U.S. assets.

The euro advanced against the yen after European Central Bank President Jean-Claude Trichet said yesterday the region’s economy is emerging from a period of “free fall,” damping demand for Japan’s currency as a refuge. The Australian dollar headed for its biggest weekly gain since May amid wagers the central bank will raise interest rates twice more this year after a surprise increase on Oct. 6.

“Bernanke is shifting to a hawkish tone in terms of the timing of exit strategy following moves by other central banks, especially the Reserve Bank of Australia,” said Takeshi Tokita, vice president of foreign exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “That’s benefiting the dollar.”

The U.S. currency strengthened to 88.74 yen as of 9:31 a.m. in Tokyo from 88.39 yen in New York yesterday. The dollar climbed to $1.4765 per euro from $1.4794. Europe’s single currency rose to 131.01 yen from 130.76 yen.

Australia’s dollar traded at 90.42 U.S. cents from 90.62 cents in New York yesterday when it touched 90.90 cents, the strongest level since Aug. 7, 2008. The currency bought 80.21 yen from 80.10 yen.

The dollar gained against 13 of its 16 most-traded counterparts after Bernanke said in prepared remarks at a conference in Washington “when the economic outlook has improved sufficiently, we will be prepared to tighten.”

Bernanke’s comments echoed those by Kansas City Fed President Thomas Hoenig, who on Oct. 6 said raising interest rates wouldn’t derail the U.S. economic recovery.

‘Incremental Increases’

“Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy,” Hoenig said in Denver. “I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later.”

Trichet signaled the ECB will keep interest rates at a record low to spur growth.

“The current rates remain appropriate,” Trichet said at a press conference in Venice after policy makers left the main refinancing rate at 1 percent. “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” he said, reiterating the Group of Seven’s statement on currencies.

Australia Rates

The yen dropped against 15 of its 16 major counterparts as the Nikkei 225 Stock Average rose 0.5 percent, following a 0.8 percent increase in the Standard & Poor’s 500 Index in New York yesterday.

Investors are certain Reserve Bank of Australia Governor Glenn Stevens will raise the overnight cash rate target on Nov. 3 by a quarter percentage point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange.

They’re wagering on a 96 percent chance he follows with another increase in December to end the year with a cash rate at 3.75 percent.