Dollar bounces off 14-month low
Greenback gets a boost after Fed chief Bernanke signals that interest rates could move higher once the economic recovery takes hold.
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NEW YORK (Reuters) -- The dollar rose broadly Friday after Federal Reserve Chairman Ben Bernanke said the central bank will be ready to tighten monetary policy as an economic recovery takes hold.
The U.S. dollar, which slid for much of the week, recovered some losses against the euro and pulled away from a more than 8-month low against the yen earlier in the week. Despite Friday's gains, the greenback remained lower against a basket of currencies for the week.
The dollar was also down against the Canadian dollar after data showed Canada added six times as many jobs as expected in September. The unemployment rate was down for the first time since July 2008.
In remarks delivered late Thursday, Bernanke said that while the Federal Reserve must continue to prop up the economy for an extended period, it cannot do so indefinitely for fear of an inflationary surge.
"People are anticipating that now the Fed may be more inclined to raise rates earlier than anticipated," said Kevin Chau, currency strategist at IdeaGlobal in New York.
"I think they will continue to jawbone by saying they're vigilant, but I think they will still hold off (raising rates) until the second half of 2010."
The Fed has cut interest rates to near zero percent and pumped hundreds of billions of dollars into the financial system to help boost the economy.
The low rates have made the dollar more attractive for use in carry trade, in which investors borrow in one currency and use the funds to buy a different higher-yielding currency.
Analysts also noted the dollar saw some support from profit-taking after a lackluster week.
The ICE Futures U.S. dollar index, which tracks the greenback against a basket of six major currencies, was up 0.6% at 76.430, above Thursday's 14-month low of 75.767.
Based on late day trading, the index was down 0.8% for the week.
The Canadian dollar, also known as the loonie, jumped to a fresh one-year high after data showed 30,600 new jobs last month compared with the consensus forecast calling for an increase of 5,000. The unemployment rate fell to 8.4 percent.
The U.S. dollar declined 0.8% to C$1.0430 after falling as low as C$1.0411, according to Reuters data.
"As we move towards parity, the more it will pull as a magnet," wrote Camilla Sutton, currency strategist at Scotia Capital in Toronto.
Despite the market's reaction to Bernanke's comments, analysts said the Fed chief did little more than state the obvious -- the Fed would be ready to tighten policy when the economy improves.
"The Fed has laid out a clear exit strategy and it is simply the timing that remains as a question," wrote Sutton in a research note.
"We continue to think that tighter monetary policy is farther out on the horizon than many market participants believe, which should drive some U.S. dollar weakness over the next few months."
The dollar rose 1.6% to ¥89.80, handily racking up its biggest daily percentage gain in two months. The dollar fell as low as ¥88.01 on electronic trading platform EBS on Wednesday, its weakest since January.
The euro slipped 0.5% to $1.4718, retreating from a two-week high of about $1.4815 on Thursday. 
