By Deborah Levine The U.S. dollar started the week under pressure, sinking Monday after the Fed Bank of New York released a statement clarifying some recent activity that market participants had interpreted as preparation for removing some liquidity from the financial system. Also, traders will listen to a speech from Federal Reserve Chairman Ben Bernanke to any hints of plans to tighten monetary policy. The greenback was also under pressure as U.S. equities advanced, luring investors into riskier assets and away from the relative safe haven of the dollar. The British pound was back under pressure after a Bank of England policy maker over the weekend indicated a potential boost in the size of the central bank's money-creating quantitative-easing program. The euro held onto small gains but faced resistance at the important psychological level of $1.50 as finance ministers from the 16-nation euro zone prepared to meet in Luxembourg. The euro traded at $1.4951, up from $1.4903 in North American trade late Friday. The dollar bought 90.74 yen, down 0.2% from Friday. The dollar index (DXY), a measure of the greenback against a trade-weighted basket of currencies, traded at 75.365 down from 75.584 late Friday. The Federal Reserve Bank of New York has been working internally and with market participants to make sure it can use reverse repurchase agreements when and if Fed officials decides they should be used. The tests are "a matter of prudent advance planning by the Federal Reserve, and no inference should be drawn about the timing of monetary policy tightening," the bank said in a statement. The dollar remained lower after Bernanke said, in prepared remarks for a conference, that, policymakers must watch for the re-strengthening of unsustainable global imbalances driven by high levels of Asian exports and low U.S. savings rates as the global economy rebounds. Euro strength Fears that ministers could express concerns about the strength of the euro could weigh on the single currency, the strategists said. A stronger euro makes euro-zone products more expensive to buyers in the rest of the world. Jean-Claude Juncker, the Luxembourg prime minister and chairman of the Eurogroup of finance ministers, last week said a continued rise by the euro "along the lines of recent weeks" could potentially "slow economic recovery in Europe," according to French news agency AFP. "Juncker's recent position suggested that the current rate of the euro is not yet a concern, but that currency volatility is not liked," BNP Paribas strategists said in a research note. "Should Juncker suggest that the level of the euro is a concern then there will be a bigger euro-bearish market impact." They expect the euro, however, to hold important chart support at $1.4740. British pound The British pound slipped as low as $1.6239 versus the dollar in European trading, before rebounding as the fed's comments weighed on the dollar. It recently traded at $1.6403, compared to $1.6355. The euro rose 0.4% versus sterling in earlier trading, but was little changed recently at 91.15 pence. The pound produced a strong bounce versus rivals last week on ideas the Bank of England's Monetary Policy Committee was likely to agree at its November meeting to pause its 175 billion pound ($286 billion) asset-purchase plan. But remarks by MPC member Adam Posen in The Sunday Times newspaper over the weekend gave new life to ideas policy makers could opt to expand the program. Posen said the decision would depend on the outcome of the bank's new quarterly forecasts, which will be available to MPC members at the November meeting. Posen, however, left the door open to boosting the program, indicating that it likely needs to continue to help heal the financial system. "It goes back to how much you think there is real overshooting and inflation risk, and how much you think the financial system has recovered," Posen told the newspaper. "My answer to the first is that I'm not worried about overshooting inflation right now. The answer to the second is that we'll have a forecasting round and we'll decide. My personal view is that if you look at the things we're looking at ... we're not there yet," he said. Earlier, property Website Rightmove reported that British home sellers raised asking prices by 2.8% in October amid ongoing tightness in the supply of available homes.

Source