LONDON, July 24: The dollar held steady on Thursday after dipping sharply against the euro in the wake of a warning from a US Federal Reserve governor that US interest rates will be cut to zero if the economy requires it.

The single European currency was slightly up at $1.1486 from 1.1482 late on Wednesday in New York.

The dollar stood at 118.73 yen against 118.75 on Wednesday.

Overnight, the dollar lost ground against a range of currencies after Federal Reserve board governor Ben Bernanke sounded a fresh warning on deflation stalking the US economy.

US interest rates are already at their lowest point since 1958, with the Federal Reserve trimming them to 1.00 percent last month in an attempt to boost flagging growth.

However Bernanke said more might have to be done.

We should be willing to cut the funds rate to zero, should that prove necessary to provide the required support to the economy, he said in a prepared speech at the University of California in San Diego.

Even if the economy recovers smartly for the rest of this year and next, the ongoing slack in the economy may still lead to continuing disinflation, he added.

The dollar was undermined by Bernanke’s comments expressing his fears about the threat of deflation, said Bank of Tokyo-Mitsubishi analyst Derek Halpenny of Bernanke’s remarks.

In particular, Bernanke pointed to the benefits of a weaker dollar in limiting the threat of deflation.

However, by that time the market had already come to the conclusion that recent optimism about the outlook for the United States was overdone given the unclear outlook for economic growth, Halpenny noted.

The (downward) move was well underway by the time of Federal Reserve governor Bernanke’s comments, which clearly helped reinforce the view that interest rate would remain unchanged for a prolonged period of time.

The euro was changing hands at $1.1486 from 1.1482 late on Wednesday in New York, 136.38 yen (136.34), 0.7117 pounds (0.7142) and 1.5477 Swiss francs (1.5454).

The dollar was being quoted at 118.73 yen (118.75) and 1.3478 Swiss francs (1.3458).

The pound was at $1.6137 (1.6067), 191.62 yen (190.80) and 2.1755 Swiss francs (2.1623).

On the London Bullion Market, the price of an ounce of gold stood at $360.35 from 354.75 on Wednesday afternoon. —AFP