LONDON, Feb 11 - The dollar rose against the euro on Wednesday from the previous session's one-month low before a testimony by U.S. Federal Reserve Chairman Alan Greenspan that markets will scrutinise for hints of interest rate hikes. Yield-boosting rate rises are key to ending the dollar's decline, especially after the Group of Seven nations made no promises at a weekend meeting to support it in the event of the "disorderly movements in exchange rates" that concern them. The Fed sparked speculation of an earlier-than-expected rate hike when it changed the wording of its last policy statement. Weak U.S. jobs data subsequently gave markets pause for thought although other figures suggest the recovery is holding up. "There is a feeling that, if anything, Greenspan will be slightly dollar supportive," said Adam Cole, senior currency strategist at Credit Agricole Indosuez in London. "There is little doubt he will be more optimistic on the outlook for the economy generally just given the strength of the numbers since the last testimony." By 0850 GMT, the dollar rose a quarter percent on the day to $1.2659 , pulling away from Tuesday's one-month low at $1.2788. It was steady against the yen at 105.52 yen , but remained close to last week's three-year lows around 105.20. The market recently has sandwiched dollar/yen between expectations of Bank of Japan intervention to limit yen rises and exporters' dollar offers. Against sterling, the greenback pulled back from the previous session's 11-year low of $1.8734 to trade at $1.8686 .
FED WATCHING
The Fed chief delivers his two-part semi-annual monetary policy testimony to the House of Representatives' Financial Services Committee at 1600 GMT, and to the Senate Banking Committee on Thursday. Analysts expect Greenspan to tell Congress that U.S. economic prospects are good but to stress the central bank can be patient before upping interest rates from 1958 lows. They also expect Greenspan to assure lawmakers that inflation is unlikely to flare up soon, given a weak job market and lots of spare productive capacity. While analysts noted that dollar weakness was a function of foreign investors' unwillingness to fund the U.S. current account deficit, the dollar could still get a short-term boost if Greenspan gave a robust outlook for the economy. "Although we are still in a structurally bearish trend, and the G7 outcome obviously reinforced that, we are perhaps looking at a pause in the long dollar decline as Greenspan delivers a relatively upbeat testimony," said Cole. "Equally there is probably a risk that he talks about some return of pricing power to the corporate sector in the U.S. -- i.e. further diminishing deflation fears. Again, that should be relatively dollar supportive." U.S. lawmakers are also likely to take the opportunity to grill the Fed chief on U.S. fiscal policy. The Bush administration has forecast a record $521 billion deficit this year but has vowed to cut that in half by 2009. Markets will also focus attention on the Bank of England's latest quarterly inflation report at 1030 GMT for clues on how soon the Monetary Policy Committee might raise British rates again after last week's quarter point rise to 4.00 percent.//