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FOREX: Dollar Falls After Greenspan Says He Expects Further Decline The dollar fell the most in a week against the euro after former Federal Reserve Chairman Alan Greenspan said the U.S. currency will probably keep dropping until the nation's current-account deficit shrinks.   FOREX: Dollar Falls After Greenspan Says He Expects Further Decline By Min Zeng Dec. 11 (Bloomberg) -- The dollar fell the most in a week against the euro after former Federal Reserve Chairman Alan Greenspan said the U.S. currency will probably keep dropping until the nation's current-account deficit shrinks. The U.S. currency has lost 10.5 percent this year versus the euro as investors bet the European Central Bank would lift interest rates more than the Fed. The dollar fell three of the past four years. It's imprudent to hold everything in one currency, Greenspan also said. He spoke via satellite to a conference in Tel Aviv. ``The dollar is heading where the current account deficit goes,'' said Tim Mazanec, senior currency strategist at Investors Bank & Trust Co. in Boston. ``A widening deficit will cause the U.S. more pain.'' The U.S. currency weakened to $1.3252 per euro at 1:27 p.m. in New York from $1.3203 on Dec. 8. The dollar fell to a 20- month low of $1.3367 per euro this month. The U.S. currency pared an earlier gain, to trade at 116.84 yen from 116.33 on Dec. 8. The euro reached a record high of 154.87 yen. ``I expect that the dollar will continue to drift downward until there is a change in the U.S. current account balance,'' Greenspan said, speaking from Washington by satellite to a business conference in Tel Aviv. A bigger shortfall in the current account, the broadest measure of trade, means more dollars need to be converted into other currencies to pay for imports. The U.S. current-account deficit was $218.4 billion in the second quarter, the second- biggest on record. Market `Trapped' ``You have a former Fed chairman talking about dollar weakness,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. ``The market is still trapped in a negative dollar sentiment, especially against the euro.'' Losses in the dollar were limited as investors speculated the Federal Reserve will keep rates unchanged at a meeting tomorrow and suggest inflation remains a risk. Traders pared bets the Fed will cut rates next quarter following a U.S. Labor Department report on Dec. 8 showing job growth accelerated in November. The Fed will keep the benchmark overnight lending rate between banks at 5.25 percent for a fourth straight meeting, according to the median estimate in a survey by Bloomberg News. The Bank of Japan's rate is 0.25 percent while the European Central Bank's benchmark is 3.5 percent. Fed funds futures indicate traders see about a 34 percent probability the central bank will reduce rates to 5 percent before April, down from about 100 percent before the labor report. 66 Percent The dollar accounted for about 66 percent of central banks' currency reserves by March, according to the Bank for International Settlements, down from around 70 percent in 2001. Russia and other oil-producing countries shifted assets away from the dollar and into the euro and yen in the second quarter, the BIS said in its quarterly review. Russia and members of the Organization of Petroleum Exporting Countries reduced dollar holdings to a two-year low of 65 percent of the total, from 67 percent in the first quarter, the Basel, Switzerland-based bank said in a report on its Web site. ``People are concerned about diversification away from the dollar, especially people at central banks who make long-term decisions about foreign-exchange reserves,'' said Lu Xinyi, chief strategist in Tokyo at Mizuho Corporate Bank Ltd. ``The whole concept implies dollar selling'' against the euro. The yen fell to a record against the euro and touched the lowest in more than two weeks versus the dollar after a Bank of Japan official told Jiji Press the central bank probably wouldn't raise interest rates next week. Japan's currency dropped against all 16 major currencies after Jiji on Dec. 9 cited the unidentified official as saying the bank needs more time to assess the economy.

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