The dollar held at four-and-a-half month highs against the euro and was steady versus the yen on Wednesday after testimony by the Federal Reserve chief signalled a rise in U.S. interest rates was on the horizon. The dollar appeared to lose its way in Tokyo trade after gaining against major rivals overnight after Fed Chairman Alan Greenspan said the threat of deflation was over in the United States. "The market doesn't seem to have a clear sense of direction at this point," said Junya Tanase, forex strategist at JP Morgan Chase. The market was fixated on the second round of testimony by Greenspan slated for 1400 GMT, although many analysts expected his remarks would simply be a detailed confirmation of Tuesday's comments and would likely have limited impact. Dollar/yen trading was erratic early on in Tokyo, with the U.S. currency touching a high of 109.15 yen on Greenspan's remarks.
At 0603 GMT, the dollar was at 108.85 yen , little changed from late New York trade but up from the day's low around 108.60 yen. It fetched $1.1840 per euro , a tad up from the late U.S. mark around 1.1855. The euro was at 128.90 yen , down from 129.12. The single currency was surprisingly resilient against the dollar despite being cornered by U.S. interest rate speculation as well as disappointing economic data out of Germany, the euro zone's biggest economy. The German ZEW research institute's economic expectations indicator dropped to 49.7 in April against a consensus forecast of a rise to 58.0 from March's 57.6. Coupled with Greenspan's testimony, the weaker-than-expected figures drove the euro down to levels not seen since November 26 in overnight trading. But despite its stubbornness to fall much further in Tokyo, analysts were expecting more euro losses soon. "Given the difference in economic fundamentals, the euro is looking more vulnerable against the dollar than the yen right now, and I expect it to continue on a gentle downtrend," said Shinichi Takasaka, manager of forex and financial products trading at Mitsubishi Trust and Banking Corporation.
MORE DOLLAR BUYING?
Analysts said dollar buying would continue in the near term as the market contemplated the timing of a U.S. interest rate hike, but the currency's downtrend was seen resuming eventually. "If dollar buying in the short-term is speculative, it will ultimately leave the door open to position unwinding, which means that in time, the dollar-selling trend will pick up where it left off," said JP Morgan's Tanase. Meanwhile, the yen hardly moved on comments from Bank of Japan Policy Board member Miyako Suda, who said sudden movements in long-term interest rates in Japan were undesirable, although modest rises should be tolerated as they reflected economic recovery. She also told business leaders in Okinawa, southern Japan, that it was hard to see consumer prices in Japan stabilising above zero -- the criteria for the central bank to end its ultra-loose monetary policy -- in the near term. Investors were also awaiting comments by San Francisco Fed President Robert Parry at 1530 GMT, as well as what the Fed's Beige Book will reveal about economic conditions across the United States when it is released at 1800 GMT. //