LONDON (AFX) - The euro strengthened against most leading currencies in volatile early trade ahead of this afternoon's testimony by the U.S. Federal Reserve chairman Alan Greenspan to a House of Representatives committee, dealers said.
They said markets remain focused on the U.S. slowdown, with investors largely overlooking domestic data.
The euro traded at 0.9204 against the dollar at 9.20 am after touching a high of 0.9225 usd in early trade.
Turning to Greenspan, dealers anticipate he might deliver a more cautious speech on the economy. Some hope he will confirm expectations of a rate cut before the Fed's March 20 meeting.
"Greenspan has re-drafted his speech which seems to indicate that perhaps he was slightly more optimistic at the Fed's February 13 meeting, than he is going to be today," said Sonja Helleman, currency strategist at Dresdner Kleinwort Wasserstein.
But whether Greenspan will hint at the potential extent and timing of a rate cut this afternoon remains to be seen.
"It is all going to be about spot the difference today," Helleman said.
Price action on euro/sfr, which often gives clues as to euro/dollar direction, moved higher.
"This seems to indicate that we could have a bit of a respite for the euro," Helleman said.
Dealers said the next important levels for euro/dollar stood at 0.9240 and 0.9295 usd. "The euro has to break above 0.9295 usd for better sentiment," they said.
Meanwhile, the dollar strengthened against the yen after the Bank of Japan cut the overnight and discount rates by 10 basis points each to 0.15 pct and 0.25 pct respectively, which some economists translated as the BoJ being ready to return to its zero-rate policy.
Sterling strengthened against the dollar and the yen at the open, supported by talk of mergers & acquisitions flows, dealers said.