The dollar held off the previous session's lows on Wednesday, awaiting any hints Federal Reserve chief Alan Greenspan might give on the outlook for higher U.S. interest rates after soft consumer data the previous day. U.S. consumer confidence figures released on Tuesday showed a sharp decline in February, making chances of dollar-boosting U.S. interest rate rises from 1.0 percent a more distant prospect than the market had been anticipating. Greenspan testifies before the House Budget Committee on the economic outlook and fiscal issues at 1500 GMT. Analysts doubt he will go beyond recent pledges of patience on monetary policy and optimism on the labour market but they will scrutinise his comments nonetheless.
"The crux of anything he says at the moment is whether you can glean anything fresh on the timing of an interest rate move," said Mark Henry, currency strategist at GNI in London. "The dollar has suffered over the past two years for being a low interest rate currency and higher interest rates would increase demand for the dollar and send a signal of confidence in general that the U.S. economy is over the worst." By 1130 GMT the dollar was hovering at $1.2660 per euro , having fallen around a cent on Tuesday to $1.2713 after U.S. consumer confidence data. The greenback has had a turbulent few weeks, hitting a record low beyond $1.29 to the euro earlier this month and then staging a hefty rebound to a three-week high of $1.2450 on Monday.
CLUES SOUGHT
The U.S. Conference Board's consumer confidence measure released on Tuesday dropped to 87.3 in February from 96.4 in January, implying growing disenchantment with the economy among U.S. consumers due to a lack of new jobs. The data threw cold water on the dollar's technical rebound of the past few trading sessions. The dollar has been sold heavily across the board for months due to prospects of continuing low interest rates and concerns about U.S. fiscal and current account deficits. "Softer than expected consumer sentiment data reminded the market that reflationary policy, or policy of keeping low interest rates, is still in place and any change in the inflation outlook is unlikely anytime soon," said Mary Davis, global currency strategist at CSFB. Fed Governor Edward Gramlich, speaking in London, called the drop in consumer confidence "modest" and said he did not think it would change the Fed's outlook. He also warned large and persistent U.S. budget and trade deficits could lead to "significant economic adjustments" worldwide. Other Fed officials, including Susan Schmidt Bies, William Poole and Sandra Pianalto, are also due to speak later.
YEN ASPECT
Against the yen, the dollar was slightly up on the day at 108.50 yen . It hit its strongest level for three months on Monday, around 109.40, but that was off a base of three-year lows around 105.15 set earlier in the month. It drew little support from earlier comments by International Monetary Fund Managing Director Horst Koehler who endorsed Japan's yen-selling intervention by saying it was appropriate given a lack of policy tools to reflate the economy. Koehler, speaking during a visit to Tokyo, added that he viewed the policy as temporary and not aimed at fixing foreign exchange rates. Japan spent a record 20 trillion yen last year in large-scale intervention to curb yen gains against the dollar and keep Japanese exports competitive. It has continued to intervene this year.//