| Home Page
Mortgage News You Can Use
Dollar Drops on Greenspan Remarks
Wed February 11, 2004 11:39 AM ET
By Kyle Peterson
CHICAGO (Reuters) - The dollar fell against the euro on Wednesday after Federal Reserve Chairman Alan Greenspan said the U.S. currency's decline should help narrow the gaping U.S. current account gap.
The Fed chief, in his semi-annual report on monetary policy to the U.S. House of Representatives Financial Services Committee, said the economy has turned the corner to vigorous growth but policymakers can be patient about raising interest rates.
It was his comment about the dollar's impact on the current account gap, however, that sent the euro to a fresh session high against the dollar and sterling to a new 11-year high.
A weaker dollar makes exports cheaper and imports more expensive, which should narrow the U.S. trade deficit, a major component of the current account.
"That is the most direct comment that I've seen Greenspan make in a very long time," said Bob Priore, desk manager at Carr Futures in Chicago. "It takes the place of any G7 statement. This will force the hand of the European community to tell us what they really think."
Last weekend, finance ministers from the Group of Seven major economic powers denounced excessive volatility in currency markets as an obstacle to global growth. Many in the market took that statement as criticism of dollar weakness. But analysts said the ministers appeared unwilling to take aggressive action to prevent further weakness.
Some economists think the Fed will raise rates from the current 1958 low of 1 percent around mid-year. Others think the central bank will leave rates steady until after the November U.S. presidential election.
The Fed sparked speculation of an earlier-than-expected rate hike in its last policy statement. But a weak January U.S. jobs report undermined that speculation, even though other data have shown the economic recovery is holding up.
Yield-boosting rate rises are key to ending the dollar's two-year decline, especially after the G7 finance ministers made no promises to support the dollar. The G7 statement warned against "disorderly movements in exchange rates."
In mid-morning U.S. trade, the euro was up 0.54 percent at $1.2757 . The dollar fell 0.32 percent to 1.2313 Swiss francs .
The dollar was down 0.09 percent at 105.39 yen . The dollar has been lingering just above three-year lows against the yen, helped by expectations of Bank of Japan yen-selling intervention.
Sterling was up 0.44 percent to $1.8788 .
Lawmakers were likely to grill the Fed chief during a question-and-answer session on U.S. fiscal policy.
The Bush administration has forecast a record $521 billion deficit this year, adding to the dollar's woes, but has vowed to halve that by 2009.
| 
