1 November 2005, 16:00  Dollar climbs to 25-Month high against yen

The dollar rose to a 25-month high against the yen Tuesday amid expectations that the Federal Reserve will raise U.S. interest rates later in the day. Speculators pushed the dollar as high as 116.68 yen - its strongest level since Sept. 16, 2003. In midafternoon trading in Tokyo, the dollar was trading at 116.50 yen, up 0.84 yen from late Monday above the 116.39 yen it bought in New York later that day. The euro fell to $1.1981 from $1.2060 late Monday on doubts about the prospects for Germany's new coalition government. The Fed is widely expected to raise interest rates by a quarter point to 4 percent later Tuesday, extending the interest rate advantage the dollar has over the yen, the euro and other currencies. That would be the 12th rate hike since the U.S. central bank launched its monetary tightening campaign in June 2004. "The Fed mentioned the impact of the hurricanes at their last meeting so while there may be an amendment to this reference, I don't expect any other major changes," said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi. "The Fed will imply that there will be additional rate hikes." The euro was weighed down by political news out of Germany, Europe's biggest economy. The head of Germany's Social Democratic Party, Franz Muentefering, said Monday he wouldn't stand for re-election and might not participate in the next Cabinet after his candidate for a top party post was rejected. Muenterfering was set to become vice chancellor in a coalition government under Chancellor-designate Angela Merkel of the Christian Democratic Union. The SPD and the CDU have been negotiating for weeks to form a coalition. "The market looks inclined to try the euro's downside over the short-term," said Shuichi Kanehira, vice president of foreign exchange at Mizuho Corporate Bank.

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