''Looking for the Next Bubble'' by Jim Puplava

Greenspan welcomes weak dollar

By Jennifer Hughes
Financial Times
Wednesday, February 11, 2004
a href=http://news.ft.com/servlet/ContentServer?http://news.ft.com/servlet/Cont...
pagename=FT.com/StoryFT/FullStoryamp;c=StoryFTamp;cid=1075982458615amp;p=101257
1727088

The euro came within a cent of its lifetime highs against
the dollar on Wednesday after Alan Greenspan, chairman
of the Federal Reserve, signalledhis ease with the U.S.
currency's decline.

The euro, having traded steadily around $1.268 ahead of
Mr. Greenspan's speech, jumped to $1.2836 as Mr.
Greenspan was questioned by members of Congress as
part of his half-yearly testimony.

On currencies, Mr. Greenspan noted the weaker dollar
would help to narrow the U.S. current account deficit.
Currency traders took the remarks as a sign of tacit
Fed acceptance of the dollar's slide.

quot;Its unusual for him to say anything on currencies,quot; noted
Tony Norfield, head of currency strategy at ABN Amro.
quot;In the good old days, he talked about the current
account deficit not being a problem because of foreigners'
demand for U.S. assets, so he's definitely changed his
tune.quot;

Mr. Greenspan also noted the decline in the dollar had
been gradual and had had no adverse effects on U.S.
capital markets. The remarks were particularly potent
after a warning by the G7 at the weekend about
quot;disorderly movementsquot; in exchange rates being
undesirable. This had in part been read as a sign of
possible intervention should currency volatility begin
affecting other markets.

Nick Parsons, head of currency strategy at
Commerzbank, said: quot;289 words on the dollar and
not one of them said 'buy.'quot;

Mr. Greenspan's generally dovish tone further undermined
the dollar, and it dropped to a new three-year low against
the yen at Y105.18 before quickly bouncing back to
Y105.3.

An upbeat inflation report from the Bank of England and
strong labour market data helped sterling higher against
both the euro and the dollar.

Unemployment fell again to new record lows and any
impact of a slower-than-expected rise in wage inflation
was soon negated by the bank's report.

Mervyn King, the bank's governor, forecast a strong
pickup in growth and highlighted expectations that
inflation, currently 1.3 percent, would rise to its target
2 percent in two years' time. By referring to market
expectations of higher rates, he bolstered economists'
forecasts of further interest rate rises.

quot;Given the MPC's focus on the build up of future inflationary
pressures, these forecasts are consistent with the market's
current expectation of a gradual rise in interest rates,quot; said
John Butler, economist at HSBC, who forecast the next rate
rise would be in May.

Kamal Sharma, strategist at Dresdner Kleinwort Wasserstein,
said that UK officials' lack of concern about currency strength
contrasted with eurozone fears and could also help the pound
higher.

Sterling, aided by the dollar's weakness in London afternoon
trade, jumped to $1.8856, a new 11-year high. The euro
slipped to a low of 0.677 - its weakest since late March last
year.

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