Dollar Gains as Fed's Hoenig Says Inflation May Spur Rate Rise

The dollar rose against the euro as Federal Reserve Bank of Kansas City President Thomas Hoenig said ``serious'' inflation pressures may spur the central bank to raise interest rates.

The U.S. currency halted two days of losses versus the euro as the yield spread between Treasuries and German bunds narrowed to the least in two months after Hoenig said the economy would recover later this year. The British pound dropped against the dollar and euro after an industry survey showed U.K. consumer confidence fell in April to the lowest in at least four years.

``Some traders are looking at Hoenig's comments and pushing up the dollar,'' said Hiroshi Yoshida, a foreign-exchange trader in Tokyo at Shinkin Central Bank, Japan's sixth-largest lender. ``This is a very hawkish tone that highlights the Fed's concern that inflation may get out of hand. A rise in Treasury yields is also supporting the dollar.''

The dollar climbed to $1.5504 against the euro as of 12:49 p.m. in Tokyo, from $1.5532 in New York yesterday, when it fell to $1.5594, the lowest level since May 1. The U.S. currency was little changed at 104.77 yen. The euro fell to 162.43 yen from 162.71. The dollar may advance to $1.5420 per euro today, Yoshida forecast.

The U.S. currency rose to $1.9697 to the pound from $1.9738 and strengthened to 1.0530 versus the Swiss franc from 1.0521.

The pound fell after Nationwide Building Society said an index of sentiment taken from the responses of 1,000 people declined seven points to 70, the lowest since the survey began in May 2004. The U.K. currency dropped to 78.74 pence per euro from 78.69 yesterday.

`Significant Risk'

The dollar has rebounded 3.2 percent since April 22, when it sank to a record low of $1.6019. The Fed said rate reductions to date were ``substantial'' after lowering its benchmark last week by a quarter-percentage point to 2 percent, its seventh cut since September.

``There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it,'' Hoenig, a non voting member of the Fed this year, said in a speech in Denver yesterday.

The yield advantage of the euro over the dollar has decreased as the spread between two-year German notes and equivalent U.S. Treasuries narrowed to 1.36 percentage points from 1.5 percentage points a week earlier.

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose to 73.088 from 72.999 yesterday. It dropped to a record of 70.698 on March 17.

Housing Report

Gains in the dollar may be limited by speculation an industry report today will show a housing slump is slowing the U.S. economy.

The National Association of Realtors' index of pending home resales fell 1 percent in March after a 1.9 percent decline in February, according to the median forecast of 30 economists surveyed by Bloomberg News. The report is due at 10 a.m. New York time.

Fannie Mae, the biggest financier of U.S. home loans, reported larger-than-expected losses and the price of crude oil surged past $122 a barrel for the first time.

``The dollar will remain weak,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., Japan's third-largest bank by assets. ``The U.S. slowdown, led by a housing slump and credit losses, is far from over. Hefty oil prices are adding to the dollar-bearish sentiment, especially against the euro.''

The dollar may fall to $1.5560 a euro and 104.30 yen today, Kato forecast.

Record Oil Prices

Crude oil rose yesterday to a record $122.73 a barrel in New York on threats to supply in Nigeria and Iraq and growing global fuel consumption. The price may go as high as $200 a barrel within two years, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a May 5 report. The euro versus the dollar has had a correlation of 0.96 with the price of crude oil in the past 12 months. A reading of 1 would mean they move in lockstep.

Bank of America Corp. lowered its forecast for the yen against the dollar as risk appetite among investors has improved. The second-largest U.S. bank predicts the currency will trade at 102 per dollar by the end of June, compared with a previous estimate of 99. It also expects the yen to decline to 105 by the end of September, a change from a previous forecast of 103.

The European Central Bank will leave the main refinancing rate at 4 percent tomorrow, according to all 53 economists surveyed by Bloomberg News.

Bank of China Raises Fees for Hong Kong Dollar Trades Sevenfold

Bank of China Ltd., the only yuan clearing bank in Hong Kong, said it raised transaction costs for conversions between the Hong Kong dollar and the yuan more than sevenfold.

Bank of China widened the spread between the cost of buying and selling Hong Kong dollars for the Chinese currency to 0.75 percentage points from 0.10 points on May 5, said Clarina Man, spokeswoman at Bank of China's Hong Kong branch.

China Foreign Exchange Trading System, the country's trading platform, increased foreign-exchange transaction fees with the Hong Kong branch of Bank of China on the same day, according to Man. She wouldn't disclose the amount of increase.

Most Hong Kong lenders said they would pass on the additional cost of converting currencies to customers, Singtao Daily reported today. Residents of the city are transferring their Hong Kong dollar deposits into the Chinese yuan to benefit from higher interest and currency appreciation, the newspaper said.

N.Z., Australian Dollars Rise; Fed Measures Buoy Risk Appetite

The New Zealand and Australian dollars rose after the U.S. Federal Reserve said it will boost liquidity by making loans in exchange for debt, encouraging investors to return to higher-yielding currencies.

The local dollars surged the most in more than six weeks against the yen, as the plan to pump $200 billion into the financial system to avert a credit crunch spurred demand for so- called carry trades. The New Zealand and Australian currencies pared a loss this month against the U.S. dollar as investors were lured by the nations' interest rates of 8.25 percent and 7.25 percent respectively.

``Risk appetite had a shot in the arm from the liquidity measures,'' said Michael Gordon, currency strategist at Westpac Banking Corp. in Wellington. ``It's a positive move for riskier currencies like the'' New Zealand and Australian dollars.

New Zealand's dollar, also known as the kiwi, bought 80.38 U.S. cents at 6:42 p.m. in Wellington, from 79.88 cents in late Asian trading yesterday. The currency surged as much as 2.2 percent to 83.30 yen before trading at 82.76.

The Australian dollar climbed to 93.17 U.S. cents from 92.37 cents late in Asia yesterday. It jumped as much as 2.2 percent to 96.31 yen before buying 95.92.

The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems. Australia's central bank yesterday injected A$1.7 billion ($1.58 billion) into the financial system via so- called repurchase agreements to encourage bank lending, almost double the daily average for this year.

Higher-Yielding Currencies

The Australian and New Zealand dollars are considered higher-yielding currencies because their nation's benchmark interest rates compare with a 3 percent rate in the U.S. and 0.5 percent in Japan.

The currencies also gained as U.S. stocks rallied the most in five years, giving investors' confidence to get funds in a country with low borrowing costs and invest in another with higher rates, earning the spread between the two.

read more:N.Z., Australian Dollars Rise; Fed Measures Buoy Risk Appetite

Dollar Declines on Speculation Fed Rescue Package Won't Succeed

The dollar fell against the euro and the yen on speculation the Federal Reserve's plan to provide funds to banks won't be enough to break the gridlock in money- market lending and stem credit losses.

``Read the need for such new measures as being a symptom of what ails the world and not a panacea for its problems,'' said David Simmonds, the London-based global head of currency research at Royal Bank of Scotland Plc, the world's fourth-biggest foreign-exchange trader. ``Stay short dollars.''

The U.S. currency also declined as traders wagered the Fed will cut rates by as much as three quarters of a percentage point to prevent a recession, while the European Central Bank keeps borrowing costs unchanged. The yen advanced against the dollar and the euro after a government report showed Japan's economy grew faster than forecast in the fourth quarter.

The dollar fell to $1.5469 per euro by 7:47 a.m. in New York, from $1.5338 yesterday, when it declined to $1.5495, the weakest level since the European single currency's debut in 1999. It slipped to 102.49 per yen from 103.42 yen. The euro was at 158.59 yen from 158.61.

The U.S. currency also dropped to $2.0168 against the U.K. pound from $2.0064 before Chancellor of the Exchequer Alistair Darling delivers his first budget statement to Parliament at noon in London today.

The yen climbed as a revised Japanese government report showed gross domestic product increased an annualized 3.5 percent in the three months through December, faster than the 2.3 percent median forecast of 27 economists surveyed by Bloomberg News.

European Industry

The euro extended its gains against the dollar after a European Union report showed industrial production in the region increased for the first time in three months in January. It rose 0.9 percent from January, more than twice the rate forecast by economists surveyed by Bloomberg.

The U.S. currency was also weighed down by speculation that Gulf central bankers will consider dropping the dollar peg when they meet next week. A Qatari official denied in a telephone interview that the meeting will discuss currency revaluation.

read more:Dollar Declines on Speculation Fed Rescue Package Won't Succeed

Dollar Falls to Record Versus Euro, Three-Year Low Against Yen

The dollar fell to a record low against the euro and the weakest in almost three years versus the yen after Federal Reserve Chairman Ben S. Bernanke highlighted risks to the economy and credit-market losses spread.

The currency declined for a seventh day against the euro after Bernanke told a Senate panel that a housing slump may cause smaller U.S. banks to fail and unemployment to increase. The yen rose against the South African rand and Australian dollar as Asian stocks declined, prompting investors to reduce holdings of higher-yielding assets funded with loans in Japan.

``This is the Bernanke shock, causing much faster dollar depreciation than expected,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets.

The dollar slumped to 104.28 yen, the weakest since May 2005, before trading at 104.33 as of 7:53 a.m. in London, from 105.37 late in New York yesterday and 107.17 a week ago. It fell to $1.5239 per euro, the lowest since the 13-nation currency was formed in 1999, from $1.5193 yesterday.

The U.S. Dollar Index, which tracks the currency against six major counterparts, yesterday touched 73.63, the lowest since its start in 1973. The index, traded on ICE Futures in New York, traded at 73.815. The euro is 30 percent above its debut level against the dollar, and up 84 percent from a record low of 82.30 U.S. cents in October 2000.

Read more:Dollar Falls to Record Versus Euro, Three-Year Low Against Yen

Euro Rises After Ifo Survey Shows German Confidence Improved

The euro rose against the dollar and the yen, reversing earlier declines, after a private report showed German business confidence unexpectedly strengthened for a second month in February.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 104.1, from 103.4 in January. Economists had forecast a drop to 102.9, according to the median of 45 estimates in a Bloomberg News survey.

``Markets have this sense that while the euro zone has been hit by the slowdown in the U.S., thing are not quite as bad as they seem,'' said Steve Barrow, chief currency strategist in London at Bear Stearns Cos., the fifth-largest U.S. securities firm. ``That's proven positive as far as the euro is concerned.''

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Euro Rises After Ifo Survey Shows German Confidence Improved

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally

Asian currencies rose, led by the Taiwan dollar and South Korea's won, on speculation rising stocks will lure overseas investors to the region's assets.

Taiwan's currency traded near its highest in 20 months as overseas investors bought NT$6.21 billion ($196 million) more of the island's stocks than they sold today, compared with NT$2.42 billion yesterday, according to Stock Exchange. The won rose after a government report yesterday showed unemployment fell to the lowest rate in more than five years last month.

``There were quite a lot of foreign fund inflows,'' said Henry Lin, a currency trader at Shin Kong Commercial Bank in Taipei. ``The foreign-exchange market has been quite clearly taking cues from stocks.''

Taiwan's dollar rose 0.2 percent to NT$31.698 as of 4:31 p.m. local time, from NT$31.746 yesterday, according to Taipei Forex Inc. The won climbed to 943.85, compared with 945.30 yesterday, according to Seoul Money Brokerage Services Ltd.

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally