LONDON (MarketWatch) -- Remarks by Federal Reserve officials over the weekend allowed the U.S. dollar to gain ground on major rivals Monday, but the greenback soon fell as equities rallied ahead of a heavy flow of corporate earnings data this week.
Trading activity was subdued due to holidays in Japan and the United States, strategists said.
St. Louis Federal Reserve Bank President James Bullard said Sunday that unemployment is headed into double digits, while the medium-term inflation outlook poses more risk than generally believed, according to news reports.
"I am concerned about a popular narrative in use today ... that the output gap must be large since the recession is so severe ... [and] any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output-gap story," he was quoted as saying by Dow Jones Newswires.
Bullard -- currently a non-voting member of the Federal Open Market Committee but set to have a vote on the policy committee next year -- made the remarks at an annual meeting of the National Association of Business Economics.
Rising equity markets limited the dollar's gains, analysts said. Rising equities have weighed on the dollar as investors move into higher-yielding assets.
Strategists at Brown Brothers Harriman said the dollar's long slide -- the dollar index is down 12% since March -- was putting pressure on U.S. officials to attempt to buoy the currency.
"We should expect U.S. verbal intervention to remain strong until the U.S. dollar has regained some moderate ground," wrote strategists at BNP Paribas.
The dollar index (DXY 76.24, -0.08, -0.10%) , a measure of the greenback against a trade-weighted basket of currencies, slipped to 76.327 from 76.461 in late New York trading Friday.
The dollar bought 90.10 Japanese yen, up from 89.85 yen Friday.
The euro bought $1.4769, up slightly from $1.4705 late Friday, while the British pound fell to $1.5804 from $1.5867.
The remarks follow a speech late last week by Federal Reserve Chairman Ben Bernanke, which was credited with lifting the dollar Friday. Strategists deemed the remarks non-controversial, with Bernanke saying the Fed would begin to tighten monetary policy before inflation pressures emerged.
The remarks were still enough to encourage traders to unwind short dollar positions, analysts said.
