The dollar climbed on Friday after a top Federal Reserve official said that U.S. inflation might rise faster than currently expected, hinting that aggressive tightening of monetary policy was on the cards. St. Louis Fed President William Poole told in an interview that the U.S. central bank must raise interest rates faster than present expectations if inflation accelerates, saying delaying Fed action would not help the U.S. economy. "Poole's comments have added to speculation about the Fed's timetable for raising interest rates, and that's leading to some dollar buying today," said Mitsuru Sahara, vice president of forex dealing at UFJ Bank. "The market has pretty much factored in a 25 basis point hike at the end of this month, but now some are starting to even consider the possibility the Fed will raise by 50." The euro eased to $1.2055 , around 0.4 percent below its level in late U.S. trade. The dollar also gained ground against the yen, rising to around 109.60 yen from 109.35 yen in late New York trade. Some dealers said the yen took a slight hit following a report by Kyodo news agency that water containing a small dose of radiation had leaked within a nuclear waste disposal facility at a nuclear plant in central Japan. Still, the yen's losses were limited, as the currency was supported by optimism over Japan's economic recovery following a recent string of healthy indicators. Dealers said that trade was thin ahead of Friday's market holiday in the United States to mark the funeral of former President Ronald Reagan.
FED WATCHING
The comments from Poole, a voting member of the policy-setting Federal Open Market Committee this year, rekindled speculation about more rate rises in quick succession after the Fed's meeting on June 29-30. The Fed is expected to raise rates by 0.25 percentage point at that meeting, from a 46-year low of one percent. Poole's comments came after Fed Chairman Alan Greenspan said on Tuesday that the bank would do "what is required" to keep inflation in check. The market has focused on U.S. monetary policy in recent months, as a rise in U.S. interest rates could boost demand for dollar-denominated debt from foreign investors. With the pace of the Fed's tightening seen depending on the pace of U.S. inflation, many market players were awaiting inflation-related data due next week, including the consumer price index for May and producer prices. On Thursday, U.S. jobless claim data came in weaker than expected, sending the dollar lower. First-time claims for unemployment benefits rose to 352,000 last week, despite market expectations for 335,000 and versus a revised 340,000 the week before.
Traders said the yen would continue to benefit from Japanese economic indicators that have landed in recent days. "Machinery orders data was pretty strong yesterday. There is no reason not to buy the yen," said Toshihiro Azuma, forex manager at Sumitomo Trust and Banking. Japanese machinery orders, a key gauge of capital spending, jumped 11.8 percent in April, adding to this week's strong economic growth data and confirming views that the world's second-largest economy is recovering steadily. Elsewhere, Sterling eased, fetching around $1.8385 versus 1.8432 in late U.S. trade. The Bank of England on Thursday raised interest rates by a quarter of a percentage point, the fourth hike in eight months, taking the cost of borrowing to 4.5 percent. The New Zealand dollar rose, adding to a one cent gain overnight after its central bank raised the official cash rate to 5.75 percent -- the highest among industrialised nations -- and hinted that with inflation bubbling more rate hikes would come.//