Wednesday March 2, 2005 - 18:07:00 GMT
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Dollar pares gains after Greenspan remarks
The dollar shed some early gains on Wednesday after Fed Chairman Alan Greenspan sounded less optimistic on U.S. economic prospects, quashing market hopes of more aggressive monetary tightening, analysts said.
Higher interest rates tend to enhance the allure of short-term dollar-denominated assets for global investors.
In testimony to the U.S. House of Representatives Budget Committee, the Federal Reserve chief said the economy is growing at a reasonably good pace but the country must tackle budget deficits by restraining spending. The euro raised about 30 ticks against the dollar after his comments hit the wire.
By mid-morning in New York, the euro fell to $1.3127, down 0.4 percent from late Tuesday. The euro zone currency rose to around $1.3131 after Greenspan's comments, from just below $1.3100 before he spoke.
The dollar rose against the yen to 104.78 yen.
Against the Swiss franc, the dollar climbed to 1.1741 francs. Sterling, meanwhile, dropped to $1.9101.
Greenspan's last testimony in early February did not use the phrase "measured pace" in reference to tightening monetary policy, leading to speculation the Fed intended to increase the pace of rate hikes. Since then, U.S. economic indicators have come in on the strong side, with labor market prospects improving.
However, analysts said, a U.S. jobs survey on Wednesday, which showed an increase in planned cuts last month due to a surge in mergers and acquisitions, fueled some dollar selling.
Consultants Challenger, Gray & Christmas Inc. said employers announced 108,387 layoffs in February, up from 92,351 in January.
The dollar's rally started overnight, despite data on Tuesday showing U.S. manufacturing growth unexpectedly slowing a tad. Analysts said investors were more focused on gloomy economic news out of Europe that reinforced expectations for euro zone interest rates to stay steady for months.
Recent data show German unemployment has risen to a post-World War Two high of over five million people while French unemployment is at a five-year high of 10 percent.
Such figures have highlighted the relative attraction of the dollar. The Fed has said it intends to keep lifting official U.S. rates from the current 2.50 percent, helping lure funds to dollar deposits. Euro zone rates stand at 2 percent.
The market is also looking ahead to U.S. job market data on Friday which is expected to show solid employment growth in February.
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