June 10 — The dollar rose to a three-month high against the yen after Federal Reserve Chairman Ben S. Bernanke said the risks of a “substantial downturn” in U.S. economic growth have diminished.

The U.S. currency gained for a second day against the euro after Bernanke also said the central bank will resist a jump in price expectations, signaling the Fed may raise interest rates. U.S. Treasury Secretary Henry Paulson said yesterday in an interview with CNBC that he would “never” rule out currency intervention to prop up the dollar.

“Bernanke’s comments support our view that the dollar is mapping out a path for a more sustained rise,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. “There appears some agreement between the US Treasury and the Fed to allow subtle jawboning of the dollar higher.”

The dollar rose to 106.84 yen, the highest since Feb. 27, before trading at 106.66 yen at 10:19 a.m. in Tokyo from 106.31 yen late yesterday in New York. Against the euro, the dollar rose to $1.5602 from $1.5646. Japan’s currency traded at 166.43 per euro from 166.33.

The U.S. dollar climbed to 94.64 cents per Australian dollar, the highest since May 16, before trading at 94.92 cents. Against the New Zealand dollar, the U.S. currency gained to 75.78 cents, near the strongest in more than four months.

Bernanke Comments

“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” Bernanke said in a speech at a Boston Fed conference. “The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.”

Paulson told CNBC he hasn’t ruled out any policy option, including intervention in the foreign-exchange market. He declined to say whether the Treasury was currently contemplating such a move.

The dollar rallied on June 3, when Bernanke said the central bank is “attentive” to the currency and will guard against a jump in inflation expectations.

“This seems quite a significant change in U.S. currency policy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Officials are drawing a line in the sand now with verbal intervention to prevent the dollar from falling to a level where actual intervention is likely. The tide of dollar- negative sentiment is about to turn.”

Forecast Change

The dollar has fallen 11 percent against the euro and 9 percent versus the yen since September, when the Fed began to lower borrowing costs from 5.25 percent. UBS AG, the second- biggest currency trader, yesterday cut its one- and three-month dollar forecasts against the euro to $1.60 and $1.53, from $1.50 and $1.47, previously.

Finance ministers of the Group of Eight industrialized countries may consider joint action to deflate the price of oil and prop up the dollar at their meeting June 13-14 in Japan, said DBS Group Holdings Ltd. in a report to clients.

“The market has linked a weaker U.S. dollar to higher oil prices, and vice versa,” the firm said. “That’s why a lot is riding on the weekend meeting.”

The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95 yen.

ECB Rate

The greenback dropped 1.4 percent against the euro last week, the most since March, after European Central Bank President Jean-Claude Trichet said on June 5 that policy makers may raise borrowing costs in July to contain inflation and the U.S. Labor Department reported the next day that the jobless rate increased the most in May in more than two decades.

Trichet reiterated in a speech in Paris yesterday that policy makers may raise the benchmark interest rate next month to ensure price stability.

Interest-rate futures trading shows the ECB will lift the main refinancing rate twice this year as inflation exceeds the central bank’s target, taking it to 4.5 percent by year-end. The implied yield on the December Euribor futures contract rose yesterday to 5.47 percent, from 5.39 percent on June 6. European policy makers last week kept their main refinancing rate at a six-year high of 4 percent, unchanged since last June.

`Job Even Harder’

“The ECB, led by Trichet, might be doing things that the U.S. might not be doing,” Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut, said in an interview on Bloomberg Radio. “All the talk of the ECB rate hike pushes the dollar down. That, in turn, pushes up the oil price. That might make the job even harder for the ECB.”

The dollar may weaken beyond $1.60 per euro, he said.

The yield advantage of a two-year German bund over a comparable Treasury fell to 1.76 percentage points from 2.26 percentage points on June 6, making dollar-denominated assets more attractive. The price of oil fell to $134.59 per barrel in New York from a record $139.12 reached June 6.