CURRENCY : Greenspan’s Comments Give Boost to Dollar

The dollar rose Tuesday after Federal Reserve Board Chairman Alan Greenspan told Congress he was committed to fighting inflation. Gold prices fell.

Currency traders speculated that the Fed might battle inflation by raising short-term interest rates, a step that would make dollar-denominated securities such as Treasury bills more attractive to investors and drive the dollar upward.

In his testimony to the House Banking Committee, Greenspan said the risks of inflation were great enough that the Fed “might well be advised to err more on the side of restrictiveness than of stimulus.”

Before Greenspan spoke, the dollar had been down from its levels of late Monday. One factor in the drop was a report that Japan was cutting its budget deficit, which would strengthen the Japanese yen, said Michael Malpede, senior currency analyst at Refco Group Ltd. in Chicago.

The Federal Reserve did not sell dollars to halt the currency’s rise, as it has in recent trading sessions, although it did call dealers asking for quotes late in U.S. trading, Malpede said. Asking for quotes is a way to remind traders that the Fed is watching and prepared to intervene.

British Pound Retreats

In Tokyo, the dollar fell 1.25 Japanese yen to a closing 126.95 yen. Later, in London, it edged back up to 127.17 yen. In New York, the dollar rose to 127.70 yen from 127.55 yen late Monday.

In London, the British pound was cheaper for buyers at $1.7700, compared to $1.7733 on Monday. Later in New York, the pound fell to $1.7690 from $1.7760 late Monday.

Other late dollar rates in New York, compared to late Monday’s rates, included: 1.8415 West German marks, up from 1.8319; 1.5607 Swiss francs, up from 1.5490; 1.1822 Canadian dollars, down from 1.1883; 6.2618 French francs, up from 6.2328, and 1,347.5 Italian lire, up from 1,343.5.

Other late dollar rates in Europe, compared to late Monday’s levels, included: 1.8395 West German marks, up from 1.8385; 1.5523 Swiss francs, down from 1.5577; 6.2335 French francs, down from 6.2545; 2.0680 Dutch guilders, down from 2.0780; 1,340.50 Italian lire, down from 1,353.00, and 1.1866 Canadian dollars, down from 1.1888.

Gold fell in light trading in London to a late bid of $407 an ounce, down from $407.75 late Monday.