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Dlr ducks in case Greenspan takes gloves off

TOKYO: The dollar was narrowly mixed on most major currencies in subdued on Monday trading as the market looked ahead to a crucial week for US interest rates.

The dollar was under modest pressure against the yen having failed at 109.70/80 yen resistance on three separate days last week, dealers said.

Sharp losses in US equities on Friday also weighed on it, though that provided only token support to the euro, which had also repeatedly faltered at resistance around $0.9960.

Traders said the focus was very much on how Wall Street performed ahead of Federal Reserve Chairman Alan Greenspan's testimony to Congress on Thursday.

Dealers have been assuming he will continue the "softly, softly" approach of recent months.

"The market has long bet that the one thing the Fed fears above all is a 1929-style crash, and that's a constraint on how far and fast they can tighten," said a US bank dealer.

"But now we're hearing whispers he will take a tougher line this on Thursday; maybe not on the scale of the infamous 'irrational exuberance' remark, but some sort of cautionary comment on equities," he added.

That risk kept the dollar stuck at 108.63 yen after easing to 108.75 in New York on Friday from a 109.76 high.

Traders said selling by Asian and US banks defending options positions around 109.80/110.00 had again been instrumental in the pullback.

Many of these options were not due to roll off until on Friday and dealers fully expected the defenders to be active until then. On the other hand, the dollar had found good support at 108.60 yen and there was more at 108.30, again partly option-related.

The euro was equally restrained at $0.9857 compared with $0.9864 late in New York on Friday, in part due to selling against the yen which pressed it to 107.10 from 102.28. For the euro, the key event of the week is likely to be the German business sentiment survey, where analysts tip a push above the psychological 100.00 level from 99.6 in December.

The first data for Japan has already been released in the shape of the December current account, which showed a surplus of 871 billion yen, well below market expectations.

Analysts said exports were constrained by the rise in the yen last year, but equally imports were up a hefty 16 percent year-on-year, which they took as a positive omen for domestic demand in Japan.

Another boost came from Tokyo Stock Exchange data showing foreigners were net buyers of Japanese equities for the last four weeks, even while the media was playing up concerns about a likely negative result for fourth-quarter.

Indeed, last week foreigners bought a net 303 billion yen worth of Japanese stocks, almost twice as much as the week before.

In the whole of 1999, offshore investors bought a record net 11.2 trillion yen of Japanese equities, and while analysts doubted that pace could be maintained this year, the weekly data showed no signs of a reversal in the underlying trend.-Reuters