The dollar bounces back

Traders hope the worst is over for the US economy

The long-battered dollar has jumped sharply in Europe and Asia, reacting to positive sentiment about US economic prospects.

Comments on Tuesday from Federal Reserve chief Alan Greenspan, while downbeat, were seized on as evidence that the US could at last be in definite recovery.

A wave of interest-rate cuts around the world, most recently in Britain and Canada, has also encouraged US investors to shift out of overseas assets.

And Japan has been rumoured to be intervening on the markets to support the dollar, hoping that a weak yen will help kick-start its stagnant economy.

Ups and downs

By the end of the day, the euro stood at $1.12, well below the highs of almost $1.19 achieved a month ago.

This goes some small way to reversing the long resurgence of the euro, whose dollar exchange rate increased by one-third between the beginning of 2002 and the middle of this year.

It will also please policy makers in many parts of the world.

US finance chiefs have been embarrassed by the recent undermining of the strong dollar, long a keystone of their policy.

In Europe, meanwhile, exporters have been complaining that the strong euro has damaged their international competitiveness.

European Central Bank president Wim Duisenberg recently welcomed the halt in the euro's rise, arguing that it helped improve prospects for fighting inflation.