The dollar lost ground on Wednesday, falling from an eight-month high, after Federal Reserve Chairman Ben Bernanke told a congressional committee the U.S. economic recovery is not yet sustainable, and interest rates are likely to remain low for an extended period.

The FOMC raised the discount rate to 0.75% from 0.50%, effective tomorrow. The FOMC noted that the policy outlook is effectively the same as during the January meeting. But it also noted that it will assess whether further discount rate hikes are needed.

The yen fell against the dollar and the euro as Bank of Japan policy makers are expected to increase purchases of government debt to safeguard the recovery and limit the currency’s strength.

Bernanke killed every investor’s hope that the Federal Reserve Bank would recently raise interest rate, stating that when the time comes, the Federal Reserve will raise interest rates to keep inflation under control that time could be far away.

European Central Bank President Trichet on Tuesday backed comments by U.S. Federal Chairman Ben Bernanke on Monday about the importance of a strong dollar, helping to stress international concern about the U.S. currency.

In his speech, Bernanke warned “as the global economy recovers and trade volumes rebound, however, global imbalances may reassert themselves.”

Today’s trading activity was subdued as U.S. markets are closed for Columbus Day. Also, markets in Japan are closed for Health-Sports Day, while Canadian markets are shut for Thanksgiving Day. So there were no U.S. economic reports on Monday.

Federal Reserve Chairman Ben Bernanke declard yesterday that the worst U.S. recession has ended, at least based on the numbers.
“From a technical perspective, the recession is very likely over at this point,” Bernanke told a conference at the Brookings Institution. But “it’s still going to feel like a very weak economy for some time.”