U.S. Federal Reserve Chairman Alan Greenspan sounded a somewhat optimistic note on the prospects for the U.S. economy last week.

In his testimony before the Senate Banking Committee on Sept. 20, Greenspan said the Sept. 11 terrorist attacks had caused a significant dropoff but stressed that the long-term prospects remain strong. Still, worries remain over the damage done to the world economy.

The disaster raised fears of a further delay in the already faltering U.S. recovery, clouding the outlook for corporate profits, employment and retail sales.

The Fed said last week that a poll of its 12 regional banks found the economy suffering slow growth. The Beige Book survey offered fresh evidence that a slowdown was under way even before the attacks.

The volatility on the currency market in recent weeks was reminiscent of the developments that followed the outbreak of the Gulf War 10 years ago. At that time, the dollar fell by as much as 25 yen in about two months.

A precipitous fall against other major currencies could again be inevitable if a switch away from the greenback gathers momentum.

The Bank of Japan has stepped in repeatedly in recent days to keep the yen from strengthening further.

If U.S. military action against terrorists leads to a drawn-out international conflict, the dollar could find itself spurned globally.