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Dollar makes big gains early june Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=ao_jH3fOhleA&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=ao_jH3fOhleA&refer=home
Dollar Posts Biggest Weekly Gain Since November Versus Euro
June 9 (Bloomberg) -- The dollar gained this week by the most since November against the euro as Federal Reserve speakers suggested they will raise interest rates this month to keep inflation in check.
Traders pushed the dollar to the highest in a month against the euro after a government report showed U.S. import prices climbed in May. The U.S. currency has rallied five straight days against the euro as mounting expectations for higher U.S. rates led traders to exit bets on a dollar decline. Fed Chairman Ben S. Bernanke led a chorus of central bank officials this week signaling concern over inflation.
``What's given the dollar a lift this week is the Federal Reserve's hawkish campaign,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. The remarks fueled ``a large-scale unwinding'' of holdings in emerging-markets and a flight to the dollar, he said.
The U.S. currency has advanced 2.1 percent this week to $1.2642 per euro at 4:13 p.m. in New York, and reached $1.2598, its strongest since May 4. The U.S. currency fell to 114.01 yen, from 114.24 late yesterday, when it reached 114.72 yen, the strongest since April 27.
For the week, the dollar has gained 2.1 percent versus the yen, the most since March.
The 1.6 percent increase in U.S. import prices followed a 2.1 percent surge the month before, the Labor Department said today in Washington. The jump compared with a 0.7 percent increase that was the median forecast in a Bloomberg survey.
Fed Odds
The dollar has rebounded about 2.5 percent from a 13-month low of $1.2979 per euro, reached June 5, and 4.6 percent from an eight-month low of 109 yen, touched last month.
Traders are pricing in about an 84 percent chance the Fed will boost its key rate a quarter-point to 5.25 percent in its June 28-29 meeting, up from 48 percent at the end of last week, interest-rate futures show.
The Fed has lifted its benchmark rate from 1 percent in June 2004. The European Central Bank raised its key rate by a quarter- point yesterday to 2.75 percent, the third increase since December. The Bank of Japan has kept its benchmark rate near zero since 2001. Fed Governor Donald Kohn yesterday described recent inflation data as ``troubling.''
Euro losses accelerated yesterday after ECB President Jean- Claude Trichet refrained from using the word ``vigilant'' in describing the bank's stance toward inflation, suggesting a slower pace of rate increases than some analysts had predicted.
Trade Gap
The U.S. currency also got support today as the U.S. trade gap, the amount by which imports exceed exports, widened to $63.4 billion in April from $61.9 billion in March, the government said. The shortfall was less than the median forecast of $65 billion in a Bloomberg survey.
The report may damp concern the dollar needs to weaken to narrow the U.S. trade shortfall. The dollar has dropped about 2 percent versus the euro and yen since the Group of Seven nations on April 21 called on China and other Asian nations to let their currencies strengthen to help shrink global trade deficits.
A narrower deficit ``could add to the momentum of dollar bears having to take a back seat,'' said Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Mellon Financial Corp, before the report.
The dollar weakened to a record $1.3666 per euro in December 2004, partly on concern the U.S. would fail to attract enough international investment to compensate for the shortfall in the current account, the broadest measure of trade. The trade deficit reached a record $68.5 billion in January.
Investment Flow
The deficit in the current account, a measure of trade, services, tourism and investments, widened to a record $224.9 billion in the fourth quarter.
The U.S. needs to attract about $2.5 billion a day to fund the gap and keep the value of the dollar steady. Net holdings of Treasury notes, corporate bonds, stocks and other financial assets increased by $69.8 billion in March, less than February's $90.5 billion, the Treasury Department said last month.
This week's 2 percent gain in the U.S. Dollar Index is the biggest since March 2005. The index gauges the dollar's value against a basket of six currencies, including the euro and yen.
Lehman Brothers Holdings Inc. advised investors to stop betting on a drop in the U.S. dollar in the next few weeks on speculation the Fed will lift rates this month.
Last Updated: June 9, 2006 16:15 EDT
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