The dollar headed for its biggest weekly gain versus the euro since 2005 as traders speculated the Federal Reserve will increase borrowing costs this year and Irish voters rejected a treaty promoting European Union unity. The U.S. currency rose to a one-month high against the euro on bets Group of Eight finance ministers meeting this weekend will signal they favor a stronger dollar. The yen was poised for a fifth weekly drop against the euro after the Bank of Japan left its target lending rate at 0.5 percent, the lowest among industrialized nations.
The U.S. currency climbed 2.7 percent this week against the euro, the biggest increase since June 2005 and rose to 1.5303 in early U.S. session (the strongest level since May 8). The dollar rose 3.1 percent versus the Japanese yen, the most weekly gain since December 2004 and touched 108.43 (the highest since Feb. 14). The euro weakens to 166.14 versus Japanese yen, from Asia high at 166.93.
The 15-nation euro weakened as Irish voters turned down the European Union treaty, a setback for the bloc's plans to strengthen its global voice. Results from yesterday's national ballot on the Lisbon Treaty show opponents defeated supporters by 53.4 percent to 46.6 percent.
The Chinese yuan rose for a second consecutive week versus the dollar, increasing 0.3 percent to 6.9022, on speculation policy makers are seeking a stronger currency to control inflation. The U.S. wants China to keep allowing its currency to rise against the dollar and will discuss that stance in talks next week in Maryland, said Alan Holmer, the U.S. Treasury's top China negotiator, in a briefing in Washington today.
French Finance Minister Christine Lagarde, before meeting with her G-8 counterparts today and tomorrow in Osaka, Japan, told reporters that the U.S. dollar's increase versus the euro is “very satisfying”. The U.S. currency strengthened versus the euro on June 9 after U.S. Treasury Secretary Henry Paulson said in an interview with CNBC that he would “never” rule out intervention. Fed Chairman Bernanke said on June 3 that he's aware of the impact a falling currency can have on price expectations.
The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
Dollar’s strength across the broad has also push kiwi and aussie lower to 0.9445 and 0.9327 respectively whist lifting the price against Canadian to 1.0298 in late U.S. session (despite the BOC holding interest rate unchanged at 3.00% on 10th Jun).
Fed funds futures on the Chicago Board of Trade show a 61 percent chance the central bank will increase the 2 percent target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago. There's a 27 percent chance policy makers will lift the rate to 3 percent by December.
U.S. consumer prices rose 0.6 percent in May after a 0.2 percent increase the prior month, the Labor Department reported today in Washington. The median forecast of most economists surveyed was for a 0.5 percent advance.
Monday economic data release includes eurozone HICP final data (May), U.S. empire state of manufacturing (Jun), foreign treasury buys (Apr), NAHB housing market index (Jun). Traders are also waiting the comments of G8 this weekend and further comments by Fed Chairman Bernanke on Monday at 17:00GMT.