The dollar remained near 2005 highs against the euro and the yen as the market focused on the prospect of higher interest rates in the US following further hawkish comments from officials at the Federal Reserve. In a speech yesterday, Fed vice chairman Roger Ferguson suggested that energy costs will add some 0.5 percentage points to the US' core CPI rate next year and noted that the Fed can counter this by raising borrowing costs. "For now, I believe that our policy of removing monetary accommodation at a 'measured' pace is most likely to promote our broader objectives of price stability and maximum sustainable growth," he said. In addition, Fed president Janet Yellen said the current Fed funds rate of 3.75 pct stands at the lower end of her estimate of a neutral policy, which she put in a range of 3.50-5.50 pct. Ian Stannard, currency strategist at BNP Paribas, said further speeches today will likely add to the chorus of hawkish Fed comments. "The fx market remains driven by interest rate differentials," he added. This focus on cyclical factors was reinforced by yesterday's news that the US continues to attract more than enough money to finance its yawning trade deficit. Capital inflow data from the Treasury Department showed that the US attracted 91.3 bln usd in August, more than the 60 bln anticipated by the market. That was the fourth month in a row that capital inflows have been so strong. The dollar has been buoyed this year, following a three-year downturn, particularly against the euro by a growing focus on interest rate developments between the US and the 12-nation European single currency zone. Over the previous three years, structural considerations were at the fore. Despite the apparent economic slowdown taking place in the US, the market continues to price in further interest rate hikes from the US Federal Reserve, given its preoccupation with inflation. Producer price data out of the US also reinforced those expectations that the Fed will raise the key Fed funds rate another quarter point to 4.00 pct on Nov 1. Figures from the Labor Department showed wholesale prices rising a larger than expected 1.9 pct in the year to September in the wake of sky-high oil prices. That was the biggest jump in 31 years and well ahead of expectations of a 1.2 pct increase. Meanwhile, core prices, which exclude food and energy, increased 0.3 pct, higher than expectations of a 0.2 pct rise. The Fed raised its key Fed funds rate a quarter point for the eleventh consecutive time last month to 3.75 pct, and indicated that the US economy is on a steady growth track despite the impact of Hurricane Katrina, while cautioning about the outlook for inflation. However, analysts said the dollar's gains against the euro from rate hike speculation is likely to diminish given the market's growing belief that European borrowing costs may well be on the way up soon too. Inflation in the area continues to rise while the rhetoric from ECB officials appear to be taking on a more hawkish tone The European Central Bank's president Jean-Claude Trichet, meanwhile said pointedly that the ECB would "act decisively" if the rise in oil prices pushed domestic prices higher. The ECB has kept its key refi rate unchanged at 2.00 pct since June 2003. Meanwhile the pound was steady ahead of the publication of the minutes to the October rate-setting meeting at the Bank of England.