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Dollar little changed, Greenspan reaction muted

TOKYO: The dollar was little changed against the yen and euro on Friday in Tokyo, as US asset markets reacted mildly to remarks by US Federal Chairman Alan Greenspan, who signalled an imminent rise in short-term interest rates to cool the red-hot economy.

In a speech at the Economics Club of New York on Thursday night, Greenspan said the Fed supports higher borrowing costs to counter mounting imbalances in the booming U.S. economy.

While signs of inflation pressures were not yet evident despite tight labour conditions, rising imbalances could bring the economic expansion to a "debilitating halt," Greenspan said.

"His comments don't seem to indicate an aggressive tightening cycle yet, and indicated a rate hike of 25 basis points (in February)," said Kenneth Landon, senior currency strategist at Deutsche Bank in Tokyo.

The speech was closely watched amid widespread expectations that the Fed will raise short-term interest rates when its policy-setting Federal Open Market Committee (FOMC) meets on February 1 and 2.

"It was a little difficult for currency markets because Greenspan's remarks generally reinforced the market's views. But we need to watch how U.S. asset markets react later tonight," a dealer at a major city bank said.

A foretaste of the U.S. reaction could be seen in U.S. Treasuries traded in Tokyo and S&P 500 stock futures on Globex, which fell in knee-jerk selling in the wake of Greenspan's remarks, but recouped most of their losses by afternoon.

The key 30-year Treasury bond was at 93-3/32, yielding 6.67 percent, after dipping to 92-28/32. It was at 93-6/32 in late New York on Thursday.

The March S&P 500 futures contract was at 1,462.00, up 3.50, after hitting a low of 1,455.00.

Market interest in the U.S. December consumer price index to be released later on Friday waned after Greenspan said in a question-and-answer session after his speech that it was not the best way of gauging price pressures in the economy.

Economists surveyed by Reuters said the CPI likely will have risen 0.3 percent. Excluding food and energy, the CPI is expected to have risen 0.2 percent.

Earlier, the dollar was lifted on buying BY importers, prompting speculative operators to build long positions.

But the dollar's upside momentum ran into a wall after it hit an intraday high of 106.39 on persistent offers from Japanese exporters.

Japanese exporters want to secure a rate of above 105 yen for their March book-closings. They will be able to convert their dollars back into yen above 105 yen through long-term forward contracts if they sell them above 106.30 yen, because the current three-month dollar/yen forward rate has a discount of around 1.30 yen, dealers said.

The dollar's upside was also blocked by profit-taking interest by overseas operators near 106.50 yen and sales to protect options with strike prices rumoured near 106.50 yen, dealers said.

Strong technical resistance was at 106.60 yen, chartists said.

On the other hand, the dollar was firmly supported near 105.50 yen, where bids from Japanese public funds were rumoured to be sitting.

The euro initially firmed to $1.0274 in the wake of Greenspan's remarks, but could not hold on to gains. Support was seen near $1.0230.

"The market was long in euro, and recent economic data has been a bit disappointing. So dealers were ready to take profits," another bank dealer said.

Elsewhere, the Australian dollar retained a firm tone against the greenback after rallying to six-month highs of $0.6677 overnight as rate hike speculation was fanned after employment data on Thursday showed an unexpectedly large rise.

The Aussie also held most gains against the yen after it stood around 70.87/97 yen by late New York on Thursday.

Sterling was slightly lower against dollar GBP and yen by late Tokyo in the wake of the Bank of England's widely expected decision to raise key interest rates by 25 basis points on Thursday.-Reuters