The dollar rose against the euro and Swiss franc on Friday and touched an eight-month peak on the yen as markets awaited U.S. inflation data later to seek clues on how soon interest rates there would rise. The April consumer price index, due at 1230 GMT, is expected to show a 0.2 percent increase in the core rate and a 0.3 percent hike overall, but there was a risk the data could exceed expectations given a stronger-than-expected April producer prices index on Thursday. Numbers on industrial production and consumer sentiment are also due from the United States. On Thursday, U.S. producer prices came in above expectations. "The stronger-than-expected PPI data led to a dollar rally. This could happen again today," said Carsten Fritsch, currency strategist at Commerzbank in Frankfurt. "Fed rate hike expectations are already aggressive but stronger-than-expected data today could further increase the probability of a June rate hike." The dollar had risen to $1.1782 per euro , within half a cent of last month's five-month high, before trimming gains to $1.1804 by 0930 GMT.
Against the yen it hit a high of 114.83 yen before easing back to 114.60. The flash estimate for euro zone gross domestic product showed the region's economy grew at its fastest quarterly pace in three years in the first quarter of this year and could expand even more quickly in the months ahead. "Given this data a rate cut in the euro zone has become more and more unlikely. But we have to see if this growth is sustainable in the coming quarters," Fritsch said.
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Right now, the Fed funds rate is at a 46-year low of one percent -- restraining foreign investors from buying dollars. A recent run of upbeat data has raised expectations the Fed could raise rates as early as June. Economists expect U.S. industrial production to rise 0.3 percent in April after a drop of 0.2 percent in the previous month. The University of Michigan consumer sentiment index is forecast to rise to 96.5 in April from 94.2 in the previous month. "The market is pricing in the possibility that the pace of U.S. rate hikes could be rapid," said Kikuko Takeda, market economist at Bank of Tokyo-Mitsubishi. "The Fed may gradually push up rates from the current extreme low to neutral levels -- which could be around 2 to 2.25 percent -- in one to two years time." In Japan, the Nikkei share average <.N225> ended up 0.23 percent although it remained near Thursday's three-month closing low. The recent sell-off in the Nikkei was triggered partly by concerns of economic slowdown in China. "The weakness in the Nikkei is an issue for the yen. There are concerns foreigners are unwinding Japanese stocks," said Steven Saywell, senior currency strategist at Citibank.///