Sun, Jul 25, 2004 - Page 10 News List

Dollar rises on Fed chief's comments despite caution

AFP , LONDON

The dollar made solid gains against major currencies on Friday, still benefitting from upbeat comments made earlier in the week by US Federal Reserve Chairman Alan Greenspan.

The single European currency fell to US$1.2157 from US$1.2256 late on Thursday in New York. The dollar rose to ¥110.14 from ¥109.77 on Thursday. The dollar has posted sharp gains recently following upbeat comments from Greenspan on the US economy, reinforcing expectations of further US interest rate hikes.

This week is set to be the first in six when the euro finishes lower against the dollar after Greenspan's comments cemented expectations for a rate hike at the next meeting of the US rate-setting body on Aug. 10.

"The euro is trading at new lows for the week and has now completely given back the gains scored since the start of the month and the disappointing US jobs report," said Marc Chandler, chief currency strategist at HSBC USA.

The signs are that the market could be set for a "corrective phase" for the dollar, he said. "With high confidence of another Fed hike on August 10, the risk of a more sustained corrective phase needs to be appreciated."

Some analysts are sceptical about how long the greenback can sustain this upward path, however, given the concerns over the US economy.

"Rising oil prices and the drop in the US equity futures argues against short-term improvements in the dollar sentiment," WestLB analysts said.

Meanwhile, sterling was trading lower against the major currencies, though off earlier lows, after second-quarter GDP figures came in in line with market expectations.

Official data earlier showed the British economy grew 0.9 percent in the second quarter from the previous quarter and by 3.7 percent from a year earlier.

Steve Barrow, currency strategist at Bear Stearns, said he expected sterling to bounce back up as British economic fundamentals continue to be strong.

Analysts are agreed that the GDP data only serves to increase confidence that the Bank of England will raise interest rates next month. Investec economist David Page said the GDP data show that the British economy "continues to grow strongly."

"With the Monetary Policy Com-mittee concerned about the absence of spare capacity this is likely to be seen as building inflationary pressure and should contribute to a further rate hike in August," Page said.

The euro was changing hands at US$1.2127 from US$1.2256 late on Thursday in New York, ¥133.54 (¥134.52), £0.6616 pounds (0.6647) and 1.5311 Swiss francs (1.5298).

The dollar stood at ¥110.14 (109.77) and SF1.2641 (1.2483). The pound was at US$1.8337 (1.8436), ¥201.94 (202.34) and SF2.3151 (2.3016).

On the London Bullion Market, an ounce of gold was US$391.50. down from US$397.75 on Thursday.

This story has been viewed 3214 times.

Comments will be moderated. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned.

TOP top