Dollar up on Greenspan talk

Story link: Dollar up on Greenspan talk

The dollar was up on Wednesday on Federal Reserve chairman Alan Greenspan’s healthy picture of the US economy in his twice-yearly report to Congress.

Additionally, the Fed increased its forecast for inflation in the US from 1.5 percent to 2 percent for 2005 and from 1.75 percent to 2 percent in 2006.

The dollar was little changed in relation to the euro at $1.2043, while it gained 0.6 percent on the yen to ¥113.44 to reach a 14-month high, and it rose 0.6 percent to $1.7293 in relation to sterling, which was a 13-month high.

Sterling was hurt by the release of the minutes of the Bank of England’s monetary policy committee meeting, which set off even more speculation that interest rates in the UK will fall in August.

The July vote not to cut rates was a thin 5-4 margin, when many had been expecting a 7-2 vote such as that in June.

Sterling fell 0.7 percent to £0.6964 in relation to the euro, a 4-month low.

Additionally, sterling hit its lowest point against the Australian dollar since October of 1997 when it dropped 0.9 percent to A$2.2947, while it lost 0.8 percent to SFr2.2429 in relation to the Swiss franc.

The yen, meanwhile, lost 0.7 percent to ¥136.62 in relation to the euro, a 14-month low and dropped to its lowest point in nearly 7 years against the Australian dollar, down 1 percent to ¥85.47.

One analyst called the yen’s weakness puzzling, given strong growth in Japan, the general opinion that the yen is undervalued, and the potential help a Chinese currency revaluation could give to the Japanese currency.

It was suggested that the yen’s problems are political in nature due to trouble for Prime Minister Junichiro Koizumi’s government over privatization of the post office in Japan.