LONDON, Feb 12 - The dollar struggled to hold off record lows on the euro and multi-year lows on other currencies on Thursday after the previous day's sell-off when Fed Chairman Alan Greenspan dismissed worries about its weakness. The market dumped the dollar on Wednesday when Greenspan indicated he was not concerned about the falling currency's impact on inflation and said the Fed could be patient about raising interest rates and that dollar falls should eventually help to contain the U.S. current account deficit. Taken altogether analysts said the comments indicated U.S. interest rates would stay unchanged at 1.0 percent for the time being in contrast to countries such as Britain where interest rates have started to rise, making their currencies more attractive.
Dealers said markets were short of dollars after recent selling and also a bit wary of European reaction to seeing the euro close in on January's record highs. U.S. weekly jobless claims due at 1330 GMT also kept investors cautious. "Greenspan lit the blue touch paper on dollar selling but people are worried that Europe is going to say something to the contrary and catch everyone napping," said a senior trader at a European bank in London. "To me it was pretty clear what Greenspan said: America hasn't got a problem with a weak dollar and Europe's got to get used to it. Europe is going to have to bite the bullet and cut rates." By 1230 GMT the dollar pulled just higher on the day to $1.2813 per euro , barely above the day's one-month low of $1.2846 and less than a cent away from January's record trough near $1.29. It had already notched up another 11-year low against the British pound, its fourth in a row, but just managed to avoid 6-1/2 year lows against the Australian dollar.
FED APPROVAL?
Analysts noted it was unusual for Greenspan, who will speak before the Senate Banking Committee at 1500 GMT, to talk about the dollar. This added to the weight of his comments on Wednesday. "Even though the Treasury is responsible for dollar policy, there is a clear view that the U.S. is following this benign neglect policy. Now this seems to have the support of Greenspan," said Michael Klawitter, senior currency strategist at West LB. Economists have forecast 345,000 new filings for jobless benefits for the week ended February 7. They expect January U.S. retail sales, also due at 1330 GMT, to show no change from December. Worse than expected numbers, especially for jobless claims, could spark a further dollar sell-off since markets see job recovery as key to future U.S. rate hikes.
COORDINATED INTERVENTION?
Hiroshi Watanabe, head of the Japanese Ministry of Finance's international division, said Tokyo would take appropriate steps on foreign exchange as needed, a clear warning to markets not to push the yen too high against the dollar. Watanabe said a Group of Seven nations' statement at the weekend warning against excess currency volatility supported Japan's intervention stance and Tokyo did not rule out the possibility of coordinated foreign exchange intervention. The European Central Bank declined comment on Watanabe's coordinated intervention remarks. The dollar gained after Watanabe's comments and held near the day's high of 105.55 during European midsession trade. It inched down to a three-year low around 105.15 on Wednesday before recovering on what New York traders suspected might have been Bank of Japan yen-selling intervention. There was no confirmation of official activity but the market is hugely wary of Japanese intervention after it spent a record amount in January to prop the dollar up against the yen.//