The dollar hovered near 14-month highs against the yen and Swiss franc late on Tuesday amid expectations that Federal Reserve Chairman Alan Greenspan will give an optimistic assessment of the US economy on Wednesday. His testimony to Congress should reinforce expectations for continued steady rises in US interest rates, making some dollar-denominated assets more attractive to global investors.
In late New York trading, the dollar traded at 112.70 yen, after earlier climbing to 112.98 yen, its highest since May 2004.
The dollar also climbed against the Swiss franc changing hands early in the session at 1.3081 francs before last trading at 1.2993, up 0.4 percent on the day.
"There is a little bit of potential for more hawkish comments from Fed Chairman Greenspan tomorrow," said Andrew Busch, global foreign exchange strategist at Harris Nesbitt in Chicago.
Bullish remarks by Greenspan released on Monday gave an early glimpse into his semi-annual testimony. In a written response to questions from a congressional committee, he said the US economy was coping well and set to expand at a moderate pace despite soaring oil prices.
Greenspan's letter suggested to investors that Greenspan will continue to raise rates, analysts said.
St. Louis Fed President William Poole echoed Greenspan's optimism on Monday, saying inflation was under control and market forecasts for higher US interest rates were reasonable.
"These comments have reduced expectations that we will see any hint of a pause in tightening in Greenspan's testimony on Wednesday," said Tom Vosa, head of market economics at National Australia Bank in London.
The Fed has raised its benchmark funds rate by a quarter-percentage point nine times since June 2004, bringing it up to 3.25 percent and increasing the dollar's allure over the euro zone's euro and the Japanese yen, where comparable interest rates yield 2.0 percent and near zero, respectively.
Sterling fell 0.5 percent to $1.7397. The euro was down 0.2 percent at $1.2034 helped somewhat by the ZEW indicator of German investor confidence. The euro fell as low as $1.1954 intraday and is down more than 11 percent for the year.
"There was some position squaring, but the euro still looks heavy. It was oversold at the $1.1955 area. That is holding pretty well ... but I wouldn't call that the bottom. If that gives way then we could go back to the $1.1870 area," said Scott Siller, North American director at G7Forex.com in New York.
The ZEW index hit a nine-month high in July, but the surprisingly robust reading was not strong enough to dispel concerns about Europe's largest economy.
Also on Tuesday, the US Commerce department released housing starts data for June, which came in at a 2.004 million annual unit rate, unchanged from May. The report had marginal impact on the dollar.
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