Greenspan breathes life into greenback

Tue Jul 20

NEW YORK (AFP) - The dollar regained some vigor after Federal Reserve Chairman Alan Greenspan said the US economy remains on a solid path, suggesting possible stepped-up moved on interest rates.

The euro fell to 1.2328 dollars at 2100 GMT from 1.2436 late on Monday in New York.

The dollar climbed to 108.63 yen against 108.14 on Monday.

"The dollar moved higher chiefly on the Fed's strong inflation upgrade ... which keeps the door open for aggressive rate hikes, despite the use of the 'measured' mantra," said Ashraf Laidi, chief currency analyst at MG Financial Group.

Greenspan said the US expansion has become "more broad-based," producing solid gains in employment, and that recent softness "should prove short-lived."

Some noted the dollar was weakening in the view that a softer US economy might preclude the need for even small rate hikes.

"The dollar received moderate support from Fed Chairman Greenspan's Senate testimony," said Bank of Tokyo-Mitsubishi analysts. "His statement downplayed the significance of recent weak economic data, suggesting that the Fed will continue to gradually raise rates."

Even before Greenspan began addressing lawmakers, the greenback had nosed up from the four-month lows it hit against the euro this week as currency investors awaited further clues on the pace of US rate hikes.

Higher rates would make the dollar and dollar-denominated investments more attractive to overseas investors.

The Fed raised US interest rates last month by a quarter of a percentage point to 1.25 percent, its first hike in four years, and signaled it was preparing to bring rates up in view of a strengthening economy.

Dollar-bearish features of recent trading are little changed, argued some analysts.

Rather, "traders squared their positions and booked some profits," said Alex Beuzelin, senior market analyst at Ruesch International in Washington, ahead of the Fed chairman's testimony.

The dollar had little reaction to US data that showed the residential construction market slowed in June.

The euro stumbled despite a stronger-than-expected reading for a German sentiment report.

In late New York trade, the dollar stood at 1.2439 Swiss francs from 1.2281.

The pound was at 1.8526 dollars after 1.8676 late on Monday.

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