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Greenback Tug of War Remains Strong
[font=verdana, arial, helvetica][size=-1] A tug of war has been taking place this year between the significant US current account deficit and the need to attract foreign capital to offset the deficit versus the potential for a rapid rise in interest rates. These forces have been influencing the greenback's valuation considerably. Higher inflation could yield higher interest rates which would consequently increase foreign appeal in the dollar. On the other hand, fundamental problems in the US economy may be exposed as a consequence of anxiety over growth prospects resulting from higher interest rates. The greenback stood strong against the euro Thursday after the Philadelphia Fed business conditions index for April exceeded economists' forecast of 10, by reaching an index value of 25.3. The euro fell to session lows around $1.3043, from around $1.3085 shortly before the report and down about 0.3 percent from levels late on Wednesday. Nevertheless, the dollar has not been able to exceed 107 yen despite a drop of 104.19 points in Japan's Nikkei 225 index and a rise of 206.24 points in the Dow Jones Industrial Average. Meanwhile Federal Reserve Chairman Alan Greenspan stepped to the plate encouraging China to loosen its currency peg to the dollar. The Federal Reserve as well as the Bush administration believe its a matter of time before China unpegs its renminbi and yuan from the dollar. [/size][/font]