TOKYO (AFX-ASIA) - The dollar was little changed in midafternoon trading ahead of congressional testimony by Federal Reserve Board chairman Alan Greenspan later today, dealers said.
At the most recent semi-annual testimony to Congress last week, Greenspan warned of additional downside risk to the US economy and suggested further rate cuts at the next FOMC meeting in August. "People are focusing on whether Greenspan will make any reference to levels of the dollar, following the recent volatile trading on speculation over possible abandonment of the strong-dollar policy," a trust bank dealer said.
US President George W Bush last week noted the adverse impact on US exporters of the strong dollar, which ignited the view that the US administration was ready to abandon the strong-dollar policy. However, Treasury secretary Paul O'Neill said overnight that he is the US spokesman on the dollar, not the President, adding that the US has no intention of ending its existing policy.
"Although O'Neill's comments put speculation on an immediate end to the policy at a rest, a lack of consensus among the authorities towards their currency may continue to weigh on the dollar," the trust bank dealer said.
"But, if the local equity market falls further, the dollar may have a chance of testing the 125 yen level, taking advantage of O'Neill's overnight comments."
Dealers said the modest rebound of the Nikkei 225 index today has so far blocked the dollar from making clear headway towards the 125 yen level.
"The market, anyway, will remain hostage to comments by policymakers in Japan, the US and Europe," the trust bank dealer said. The euro was lower after the release overnight of a sharper-than-expected fall in Germany's Ifo business sentiment survey to a five-year low of 89.5 in June from 90.9 in May, as well as on O'Neill's comments, dealers said.
"The euro is not likely to enjoy a sustained rally from present levels, but it is rather expected to remain exposed to downside risk," the trust bank dealer said, citing a lack of clarity over the trend of economic activity.
Some participants also refrained from taking active positions in the euro-dollar due to speculation that OPEC is considering a cut in oil output in the next 7-10 days due to excess inventories and falling prices, dealers said.