Dollar steadies against euro for now

The dollar steadied today following a plunge to four-year lows against the euro in the previous session.

The dollar hit session highs at $1.1604 per euro, drifting in a range between $1.1610-70 throughout the European session.

There is nervousness in the market that the euro may fall a few times before it breaks the launch level Mr Aziz McMahon, currency strategist at ABN Amro

The threat of potential intervention from Japan also kept the dollar supported against the yen.

Analysts said today's pullback was only temporary and the dollar was likely to resume its downward spiral, possibly bringing the euro back to its 1999 launch level of $1.1747 soon.

"There is nervousness in the market that the euro may fall a few times before it breaks the launch level, just as it happened when euro/dollar went through parity," said Mr Aziz McMahon, currency strategist at ABN Amro in London.

The dollar has long been plagued by the vast US current account deficit, market worries over Washington's spending plans and the paltry yields on dollar instruments.

Fresh selling could start as soon as tomorrow when Federal Reserve chairman Mr Alan Greenspan testifies in Congress, analysts said.

"He could trigger more selling by discussing disinflationary risks," said Mr McMahon. "With short end rates as low as now, the conventional way of addressing disinflationary problems is to let the currency fall".

The Federal Reserve had issued a warning about the risk of US deflation earlier this month and markets are on their toes to see whether the chairman reiterates this concern.

Today US Treasury Secretary Mr John Snow is in focus, after his comments on the dollar at the weekend and an apparent lack of concern over the unit's fall from his fellow Group of Seven policy-makers triggered the latest selling.

Mr Snow, who called the recent currency moves "fairly modest", testifies in Congress at 3 p.m. Irish time.

In the euro zone, European Central Bank (ECB) council member and Bundesbank President Mr Ernst Welteke raised expectations the ECB may be positioning for lower interest rates. He told a newspaper he saw no sign of deflation in Germany or Europe and there was room for manoeuvre in monetary policy.