The dollar gained in Asia on expectations a report will show U.S. consumer prices rose in March for a fourth month, boosting the chances the Federal Reserve will increase interest rates by September. The U.S. currency yesterday climbed to the highest in more than four months against the euro and had its biggest rally in more than seven weeks versus the yen after a report showed a surge in retail sales. Consumer prices probably rose 0.3 percent from February, according to the median of 70 forecasts in a Bloomberg News survey.
``We're going to have a good rally in the dollar,'' said Tsutomu Soma, a currencies and derivatives trader at Okasan Securities Co. in Tokyo. ``A spate of reports is supporting the probability the Fed will bring forward a rate increase.'' The U.S. currency strengthened to 106.97 yen at 1:24 p.m. in Tokyo from 106.58 late yesterday in New York, according to EBS, an electronic foreign-exchange dealing system. Against the euro, the dollar was at $1.1928 from $1.1946 in New York, where it gained to $1.1905, the strongest since Nov. 28.
Gains in the dollar may accelerate should it breach $1.19 against the euro and 107.40 yen, levels at which automatic orders to buy have been placed, Soma said. Sales at U.S. retailers rose 1.8 percent in March, the biggest increase in a year, the Commerce Department reported yesterday.
Kuroda
The U.S. currency dropped 11 percent against the yen in the past year. The dollar is close to ending its decline and will rise through mid-year as the U.S. economy strengthens, Haruhiko Kuroda, Japan's former top currency official, said. ``There is no momentum for the dollar to fall or for the yen to advance further,'' Kuroda, now an adviser to Prime Minister Junichiro Koizumi, said in an interview in Tokyo yesterday. ``I expect the dollar to regain ground at a moderate pace through summer.'' The federal funds rate was last changed in June, when the Fed's policy-making Open Market Committee cut it by a quarter percentage point to 1 percent, half the European Central Bank's key rate. The yield on September Eurodollar futures rose 3.5 basis points to 1.540 percent in Singapore, and the yield on the December contract climbed 5.5 basis points to 1.91 percent. A basis point is 0.01 percentage point. Eurodollar futures settle to the three-month London interbank offered rate, or Libor, which has averaged about 22 basis points more than the Fed's target in the past 10 years.
Sell On Rally
Gain in the dollar may be limited against the yen on speculation overseas investors will extend their purchases of Japanese assets. The dollar has risen 3.5 percent against the yen since falling to a four-year low of 103.40 on March 31. Citigroup Inc. yesterday in a report to clients recommended selling the dollar at 106.70 yen for a target of 102. Investors should end the trade to limit losses should the dollar end New York trading stronger than 107.25 for two days, the world's biggest financial services company said. Overseas investors bought a record 14 trillion yen ($131 billion) of Japanese shares in the fiscal year that ended March 31, helping the Nikkei 225 Stock Average rise 47 percent during the period, a Ministry of Finance report showed this week.
Parry, Bernanke
Rising expectations the Fed will increase interest rates have prompted traders and investors to focus on comments from central bank officials. Robert Parry, president of the San Francisco Fed will speak today on the U.S. and regional economic outlook at St. Mary's College in Moraga, California. ``The questions are, `what is the Fed's reaction?' and ```will the Fed be tightening rates imminently?''' said Peter Munckton, a debt market strategist in Sydney at Commonwealth Bank of Australia. ``The market has fully priced an August tightening and a decent chance of a move in June.'' Parry, a non-voting member of the Fed's rate-setting Federal Open Market Committee, said in an interview published Sunday in the San Francisco Chronicle that Fed's key rate has the potential to rise to about 3.5 percent if inflation averages at 1 percent to 2 percent. Fed Governor Ben Bernanke will speak tomorrow on what policy makers can learn from asset prices at the Union League Investment Club in Chicago. Fed Chairman Alan Greenspan is scheduled to testify before the Joint Economic Committee of the U.S. Congress on April 21.
Jobs
The dollar has gained 3.7 percent against the euro since a report on April 2 showed the U.S. economy in March created the most jobs since April 2000. Initial U.S. jobless claims last week fell to the lowest in more than three years. In Europe, a report last week said German unemployment increased by the most in a year in March. The country's industrial production unexpectedly fell for the first month in five in February and exports declined for the first time since October, reports last week showed. ``European data have been weak while the U.S. had quite strong data lately, including yesterday's retail sales, encouraging dollar buying,'' said Hideyuki Tsukamoto, a foreign- exchange manager at Mizuho Bank Ltd. ``Any strong number on the consumer prices today will provide further support to the dollar,'' which may strengthen to $1.1850 today, he said. The dollar index, a measure of the U.S. currency against six of its peers, rose to as much as 90.08 yesterday, the highest since Dec. 2. The index was at 89.97. In other trading, the British pound fell to $1.8141 from $1.8192 late yesterday in New York. The dollar was at 1.3013 Swiss francs from 1.2995. ///www.bloomberg.com