The dollar extended gains on Thursday, hitting new highs against the yen and the pound after a run of upbeat U.S. economic data raised expectations the Federal Reserve would raise interest rates sooner rather than later. U.S. March consumer prices rose by a higher-than-expected margin while the U.S. trade deficit, which has been one of the biggest weights dragging down the dollar, narrowed by more than expected in February, data showed on Wednesday. The U.S. currency jumped to around $1.7783 per pound , its highest mark since late December. It also spiked up to a one-month high of 109.28 yen , compared with the 108.64/72 seen in late U.S. trade. "Yesterday's data was clearly a positive for the dollar," said Mitsuo Imaizumi, deputy manager of the international bond and forex department at Daiwa Securities SMBC. Traders said that foreign selling of Japanese stocks was also weighing on the yen. The Nikkei average <.N225> was down around 2 percent in early afternoon trade after rising to its highest level since August 2001.
RALLY NEAR END?
The dollar has rebounded about five percent from a four-year low around 103.40 yen hit on March 31, but many analysts doubt the rally will continue for long. "We're probably not likely to see the dollar's strength last... I think there is quite a large chance of the market overrating the chances of a near-term Fed hike," said Naomi Fink, senior currency analyst at BNP Paribas. Fink said that, particularly given worries about rising oil prices, the Fed would be reluctant to lift rates from a 46-year low of 1.0 percent until data showed several consecutive months of strong U.S. jobs growth. San Francisco Federal Reserve President Robert Parry said on Wednesday the Fed would have to raise its benchmark funds rate "at some point" but added that the performance of the U.S. jobs market was "far below" where the Fed would expect it to be in a typical expansion. For further clues on the U.S. jobs outlook the market was looking to unemployment claims data due later in the day. Markets expect 335,000 initial claims for the week ending April 10, compared with 328,000 in the previous week. The market also had an eye on developments in Iraq, after Japanese media reported that two more Japanese civilians had been abducted in Iraq in addition to three taken hostage by militants last week. Analysts say that Prime Minister Junichiro Koizumi's handling of the situation could affect the showing of his ruling coalition in Lower House by-elections later this month and a poll for parliament's Upper House in July. "I think there is a real focus on how this is going to affect the Koizumi government and its potential to enact reforms," said Fink. The dollar was at $1.1948/53 per euro compared with an overnight high of around $1.1870, its lowest since November 26.////