The dollar rose against most major currencies in London on speculation a government report tomorrow will show a faster pace of U.S. inflation, prompting the Federal Reserve to be more aggressive in raising interest rates. Consumer prices rose 0.5 percent in May, according to the median of 65 forecasts in a Bloomberg News survey, up from 0.2 in April. Cleveland Fed President Sandra Pianalto, who votes on policy this year, said on Friday the central bank's target rate of 1 percent ``is too low to be sustainable.'' ``The perception now is that the Fed may raise rates more aggressively than people originally thought,'' said Francesca Fornasari, a currency strategist in London at Morgan Stanley. ``We're bullish on the dollar,'' which may gain to $1.1850 per euro in the next couple of weeks, she said.
Against the euro, the dollar gained to $1.1973 at 9:19 a.m. in London compared to $1.2010 late Friday in New York, according to EBS, an electronic foreign-exchange trading system. It earlier rose to a three-week high of $1.1955. Versus the yen, the dollar climbed to 110.88 from 110.08. The dollar advanced against 15 of 16 major currencies tracked by Bloomberg data. It slipped against the South Korean won. The yen also weakened after a report Sunday in China's Economic Observer newspaper said the country's central bank, the People's Bank of China, is ready to raise interest rates to slow an economy that grew 9.8 percent in the first quarter. The report, which cited an official it didn't identify, was denied by central bank spokesman Bai Li. China is the second- largest buyer of Japanese exports. China's producer prices rose 5.7 percent in May, the government said today.
`Hard Landing'
Should China raise borrowing costs, ``people will get quite worried about a hard landing and put pressure on the yen,'' said Hans Guenter Redeker, head of foreign-exchange strategy at BNP Paribas SA in London. ``The yen will test 112 in the next few days.'' The Labor Department will release the consumer price report tomorrow at 8:30 a.m. in Washington. Traders are betting U.S. policy makers will lift the benchmark rate by at least a quarter percentage point when they meet at the end of the month. ``Everyone is bullish on the dollar,'' said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc. The Fed is ``prepping the market for a move, and now there's some question as to whether it will be 25 basis points or 50.'' A basis point is 0.01 percentage point.
Sell Orders
The dollar's advance against the yen accelerated after it breached 110.60 and then 110.75, levels where automatic orders to sell the yen had been placed, said Shigeru Inaba, sales manager of the financial institution sales department in Tokyo at Calyon, the investment banking unit of Credit Agricole SA. The yen fell to 132.70 per euro from 132.13. China faces a ``tough job'' in trying to slow growth that's spurred raw-material shortages and transport congestion, Premier Wen Jiabao was cited as saying by the official Xinhua News Agency yesterday. About 55 percent of the 80 traders, investors and strategists polled Thursday and Friday from Tokyo to New York advised buying or holding the dollar against the euro.
`Good for Dollar'
July federal funds futures yield 1.325 percent, showing traders see a 100 percent chance the Fed will raise its 1 percent target rate by at least a quarter percentage point this month. Fed policy makers next meet June 29-30. Pianalto's comments followed similar remarks last week by Fed Chairman Alan Greenspan, St Louis Fed President William Poole and Atlanta Fed President Jack Guynn. On Friday, Poole told in an interview policy makers policy makers can boost rates ``further and faster than priced-in in the market.'' Among the regional Fed bank presidents, the New York branch president always votes on the Federal Open Market Committee, which decides monetary policy. The others rotate for four voting slots each year. Pianalto and Poole vote this year. ``Expectations of Fed tightening are good for the dollar on the back of confirmation of a sturdy-growth recovery,'' said Paul McCulley, managing director at Newport Beach, California-based Pacific Investment Management Co., which manages the largest U.S. bond fund. ``Currency markets applaud pro-growth, anti-deflation monetary policies.'' ///www.bloomberg.com