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Dollar recoups losses on greenspan speech Original Source Link: (May no longer be active)
http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=7541579http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=7541579
Dollar Recoups Losses on Greenspan Speech
Fri Feb 4, 2005 09:46 AM ET
NEW YORK (Reuters) - The dollar recouped losses after Federal Reserve Chairman Alan Greenspan said the U.S. current account gap cannot widen forever.
Market forces and tighter US fiscal policy should stabilize and may cut the gap, Greenspan said.
Greenspan made the comments at a conference in London hosted by the British Treasury. His speech sent the dollar roaring back after it had earlier tumbled on the back of a softer-than-expected U.S. jobs report.
The euro (EUR: Quote, Profile, Research) tumbled over a cent to trade lower on the day at $1.2939 after Greenspan's comments. It fell as low as $1.2912, a near three-month trough, after hitting a session high of $1.3043 after the employment data.
The dollar had been hurt in recent months as Fed officials expressed concern about the swelling U.S. current account deficit and suggested a further dollar fall would be needed to reverse it.
"It looks as if Greenspan has de-emphasized concerns about the current account deficit, which is in stark contrast to his statements in November," said Paresh Upadhyaya, portfolio manager with Putnam Investments in Boston. "The dollar has rallied sharply in response to Greenspan."
U.S. non-farm payrolls for January increased by 146,000, compared with a downwardly revised 133,000 increase in December, and much lower than the 190,000 increase expected. The unemployment rate fell to 5.2 percent from 5.4 percent.
But Greenspan's apparently more sanguine stance on the U.S. external imbalances gave the dollar a massive boost.
"Besides market pressures, which appear poised to stabilize and over the longer run possibly to decrease the U.S. current account deficit and its attendant financing requirements, some forces in the domestic U.S. economy seem about to head in the same direction," Greenspan said in remarks prepared for delivery at a conference hosted by the British Treasury.
Analysts have said a fall in the value of the dollar over the past 3 years had partially reflected nervousness over record U.S. budget and trade gaps.
NON FARM PAYROLLS
The dollar's earlier move lower was triggered by the U.S. jobs data.
"Clearly the number was a little lower than anticipated, but it's not that bad a number really," said John McCarthy, Director of Currency Trading at ING Capital Markets. "The bond market is rallying like crazy and the dollar is weakening but you have to be a little careful here - the number wasn't that bad."
The report had left investors debating whether the Federal Reserve might pause its program of interest rate hikes earlier than assumed. The Fed has steadily raised its target for the fed funds rate over the last six months, taking the key rate to 2.5 percent from 1 percent as it seeks to return the rate to what it considers a "neutral" level.
The dollar had already given ground to the yen prior to the jobs report as investors made last-minute bets China might revalue its currency at this weekend's Group of Seven meeting, but pared losses on Greenspan's comments. The dollar was last down 0.7 percent at 103.70 yen (JPY: Quote, Profile, Research) .
A Chinese state newspaper said conditions were ripe for the country to widen the yuan's trading band, even though Chinese officials have recently downplayed the chance of imminent reform to the country's currency peg.
(With additional reporting by John Parry and Jamie McGeever in New York.)
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