TOKYO, Feb 23 - The dollar traded near a three-month high versus the yen and a three-week peak against the euro in choppy trade on Monday, keeping much of last week's huge gains. The dollar rocketed about two percent higher against major currencies on Friday, triggered by news that Japan had tightened security at 650 key facilities, including nuclear power plants, as more Japanese troops left for Iraq. But many market players said the news was merely a catalyst for a long overdue adjustment. Still, the dollar's jump higher jolted many market players, who had become accustomed to dollar-selling on the view that the gaping U.S. current account deficit required a weak dollar. With the greenback now floating well above its recent three-year low versus the yen and record low against the euro hit earlier this month, fears that the currency was in a freefall have faded. "I don't think the dollar is going to test new lows, at least in the coming month," said Takashi Toyahara, a forex manager at Nomura Securities. The dollar climbed as far as 109.40 yen , its highest level since December 2 and a gain of four percent from its recent three-year lows just above 105 yen. It later stabilised around 108.75 yen, below late U.S. levels around 109 yen. The euro hit a new three-week low of $1.2450 in early trade, down from $1.2530 in late U.S. trade and off nearly five cents from its record high of around 1.2925 hit just last Wednesday. But the single currency also later pared its losses to around $1.2500.
CHANGING TIDE?
Adding to the dollar's momentum on Friday was U.S. inflation figures that came in above expectations, with the consumer price index rising 0.5 percent in January. But core inflation, which strips out volatile food and energy prices, remained benign at 0.2 percent, suggesting the Federal Reserve still could bide its time before hiking overnight interest rates from a 1958 low of one percent. As long as U.S. interest rates remain low, global capital is likely to continue to shun the dollar and head to higher-yielding currencies, some traders say. Many traders were expecting Fed Chairman Alan Greenspan to repeat his recent line that the Fed can be patient in monetary tightening given weak inflationary pressure, when he makes a speech at 1415 GMT. "I think the key is when will the U.S. start raising rates," said Kota Kimura, assistant manager at Shinkin Central Bank. "I don't think Greenspan will change his tone. But if he does, or if economic indicators, particularly jobs data, come in strong from now, the dollar could rise further," he added. On Friday the market showed limited response to Greenspan's optimistic comments about a recovery in the U.S. jobs market.
Apart from Greenspan, U.S. Treasury Secretary John Snow is also slated to speak at 1600 GMT. Some market players said the dollar was unlikely to rise much further, as the huge U.S. current account deficit would continue to haunt it. The yen showed muted reaction to Japan's customs-cleared trade surplus, which rose 393.4 percent in January from a year earlier to 507.1 billion yen ($4.74 billion), much stronger than a forecast surplus of 114.6 billion yen. Japan's top financial diplomat, Zembei Mizoguchi, said on Monday that a rise in the dollar reflected the strength of the U.S. economy and that operators were covering short dollar positions.//