LONDON, Sept 8 (AFP) - The dollar fell sharply against the euro here Wednesday as US Federal Reserve Chairman Alan Greenspan told Congress that inflation was under control, signalling to investors that US interest rates were not about to rise.
The single European currency in late-day trade was at 1.2163 dollars, against 1.2105 late Tuesday in New York.
The dollar meanwhile was trading at 109.11 yen after 109.35 on Tuesday.
While Greenspan told a House of Representatives committee that the US economy had regained its footing after experiencing a soft patch earlier in the summer, he said inflation expectations had diminished despite the rise in oil prices through mid-August.
"The dovish comments on inflation just took the steam out of the dollar," said Neil Mackinnon, chief economist at ECU Group.
As a result, the market put a question mark on whether the Fed will raise the cost of borrowing another quarter point at its next rate-setting meeting on September 21.
Most analysts predict the Fed will stick to its program of "measured" interest rate increases, even in September, in light of Greenspan's overall comments on the economy.
"The overall message is that there is no need for the Fed not to tighten but equally no sense that the Fed feels any great sense of urgency to march rates back up to neutrality," said Ray Attrill, research director at 4CAST.
In an upbeat assessment, the central bank chief said the economy appeared to be weathering a slowdown most likely related to the steep rise in oil prices.
"The most recent data suggest that, on the whole, the expansion has regained some traction," he said.
Consumer spending and housing starts have "bounced back" in July after a tepid performance in June and business investment "remains on a solid upward trend," Greenspan told lawmakers.
Separately, sterling was buoyed after falling to lows against the dollar not seen since May in trading Tuesday.
News from the corporate world helped the pound. British Airways is selling its 18 percent stake in the Australian carrier Qantas and BBC Worldwide may be put up for sale.
The Bank of England decides on interest rates Thursday, but with expectations almost unanimous for a no-change verdict, no currency market impact is predicted.
The euro was changing hands at 1.2163 dollars against 1.2105 late on Tuesday in New York, 132.81 yen (132.37), 0.6801 pounds (0.6828) and 1.5355 Swiss francs (1.5340).
The dollar stood at 109.11 yen (109.35) and 1.2620 Swiss francs (1.2673).
The pound was at 1.7986 dollars (1.7726), 195.31 yen (193.82) and 2.2584 Swiss francs (2.2480).
On the London Bullion Market, the price of an ounce of gold stood at 396.30 dollars compared with 398.10 dollars late on Tuesday.