NEW YORK, Feb 4 (AFP) - The dollar hit a three-month high against the euro Friday after Fed chairman Alan Greenspan seemed to backpedal from earlier comments by saying the US current account deficit is not a crisis waiting to happen.
The dollar, which also got a boost when a leading Chinese official said that Beijing was not ready to abandon its currency peg, was able to shrug off a widely anticipated report on US job creation that was weaker than expected.
The euro fell to 1.2866 dollars from 1.2975 late on Thursday in New York, after hitting an intraday low of 1.2863.
The greenback is now up six percent from its all-time low of 1.3666 to the euro on December 30.
The dollar however was unable to gain ground against the yen, easing to 104.09 yen from 104.45 on Thursday.
Following the January non-farm US payrolls report, the euro had pushed up to a high of 1.3038 dollars but then moved back below 1.29 on remarks by the US Federal Reserve chairman and China's central bank governor Zhou Xiaochuan.
"It started with Greenspan," said analyst Steve Plant at FX Analytics.
"Everyone expected that Greenspan would warn again against the deficits."
"These comments are in sharp contrast to those he made in November, when he said that foreign appetite for US assets may wane given the size of the US current account," said Charmaine Buskas, currency analyst with Economy.com.
"Those (November) comments led to a one percent decline in the dollar, since they served as yet another reminder of the massive imbalances that face the United States."
The current account tracks trade and investment flows, and the US is running a deficit of about six percent of economic output, its largest share ever.
But Greenspan said he believes the US economy can handle the adjustment. And he said market pressures "appear poised to stabilize and over the longer run, possibly to decrease the US current account deficit and its attendant financing requirements."
The dollar's initial drop was sparked by a US jobs report which diminished expectations the Fed would accelerate the pace of its monetary tightening.
Official figures from the Labor Department showed the US economy generated 146,000 jobs in January, below market expectations of a 200,000 improvement.
Analysts also said the remarks by Zhou that China is not ready to abandon the peg to the dollar diminished expectations that anything meaningful would emerge at the two-day G7 meeting.
China, which was invited to attend the meeting, has repeatedly pledged over the last several years to loosen its dollar peg, but has not indicated a timetable, saying only that any changes would be gradual and stable.
In late New York trade, the dollar stood at Swiss francs 1.12109 Swiss francs from 1.2014 Thursday.
The pound was at 1.8754 dollars from 1.8818.
02/04/2005 22:45 GMT - AFP