LONDON, Sept 17 - The dollar rose to a three-month high against the euro, yen and Swiss franc on Tuesday as news Iraq would accept the return of U.N. arms inspectors eased fears of an imminent U.S. strike on the country. "We are seeing a relief rally in the dollar," said Aziz McMahon, currency strategist at ABN Amro. "The apparent isolation of the Bush administration on Iraq had weighed on the dollar and now people are being forced to cover short positions."
The dollar -- whose performance has tracked risk appetite closely in recent months -- leapt as much as one percent to 1.53 Swiss francs CHF as investors unwound safe-haven trades. It also tested highs around 123.50 yen JPY and $0.96 per euro EUR but had trimmed some of its gains by the European midsession.
Iraq said on Tuesday it had robbed the United States of any justification for waging war against it by agreeing to re-admit weapons inspectors without conditions. The White House, however, called Iraq's offer an evasive tactic and Treasury Secretary Paul O'Neill said the Iraqi regime still needed to be changed.
"The dollar has shown a strong reaction to a lowering of risk aversion but whether it can follow through is questionable as there may be more complications ahead," said Mitul Kotecha, global head of currency research at Credit Agricole Indosuez. //