Optimistic investors boost greenback

The dollar rose to its highest level this year against the euro on Friday and reached new multi-month highs versus the Swiss franc and the UK pound amid a broad improvement in sentiment for the greenback.

Trading leveled off later in the day after US Federal Reserve Chairman Alan Greenspan spoke to the New York Economic Club. Even though Greenspan answered some pertinent questions about the hotly debated revaluation of the Chinese yuan, his remarks had little apparent effect on currency rates.

Though there was no specific news to spur the gains early on Friday in New York, the dollar's advance came as impatient investors grew more confident about the outlook for the short term. On Thursday, UBS and Citigroup both changed their short-term dollar forecasts, following similar moves by other major institutions last week.

In late trading in New York on Friday, the euro was at US$1.2564, down from US$1.2630 late Thursday. The dollar was at ?108.19, up from ?107.65, and at 1.2345 Swiss francs from SF1.2223.

The British pound was at US$1.8277 from US$1.8327, and the euro was at ?135.88 from ?136.02.

In European trading, the euro, used by 12 EU nations, was at US$1.2543 after hitting a day low of US$1.2537. That broke the euro's previous low for the year of US$1.2582, set on Monday on the back of better-than-expected US economic reports.

The dollar's rally was robust enough to allow the US currency to exit active trading near its intraday highs, remaining close to seven-month peaks versus the euro and Swiss franc, a six-month high versus the pound, and a six-week top versus the yen.

Analysts said that some investors had been waiting for any decline in the dollar to provide an opportunity for buying. With the weekend approaching, many decided to position themselves for further gains dollar next week.

"All week we've had disappointing US news -- yields have fallen and the markets have been very skeptical about going dollar positive," said Lara Rhame, currency strategist at Credit Suisse First Boston.

"The market was waiting for weakness to buy in on a dip and we continued not to get it. Now everyone is trying to chase the rally," she said.

Beginning May 12, the euro has moved out of the ranges that had defined trading since the beginning of the year. It is now not far from US$1.2450, the top end of the range in which it traded last summer before the dollar plunged later in the year.

But activity in the markets slowed as Greenspan took the podium to give his prepared remarks to the New York Economic Club. Although his speech was centered on energy issues, Greenspan pointedly answered questions regarding the revaluation of the yuan.

Greenspan said that a revaluation could impact the US economy by pushing up import prices, but ultimately would not help reduce the trade deficit. He also noted that if and when China does revalue the yuan, economists expect the government to do it at a measured pace by either widening the band or shifting the peg to a broad basket of currencies.

The Fed chairman has made similar remarks in the past.

Greenspan's comments come after US Treasury Secretary John Snow avoided accusing China of being a currency manipulator in the Treasury report to Congress on Tuesday, but implied time was running out for China to avoid that designation.

The gains from early in the day offset the Canadian dollar's potential to rise as weeks of political intrigue came to a close. Late Thursday, the Liberal government won a razor-thin victory in a crucial Parliamentary budget vote that could have forced an early election.

Though the Canadian dollar was expected to gain on that news, the broader dollar rally overshadowed the market's reaction.

Late Friday, the US dollar was at C$1.2658 from C$1.2598 late Thursday.