Dollar Rises Versus Euro


The dollar rose to the highest level in five weeks against the euro on speculation the Federal Reserve may stop reducing borrowing costs as the U.S. economy shows signs of resilience.

The currency increased versus the Swiss franc and Swedish krona a day after the Fed cut by a quarter-percentage point to 2 percent and said previous decreases were ``substantial.'' The pound increased to the highest in more than a month against the euro as the Bank of England said the worst of the credit crisis in the U.K. may be over.

The dollar rose 1 percent to $1.5474 against the euro at 8:49 a.m. in New York, from $1.5622 yesterday. It touched $1.5466, the strongest since March 25. The dollar was little changed at 103.98 yen, compared with 103.91 yesterday. The euro fell 0.9 percent to 160.90 yen, from 162.29.

Futures on the Chicago Board of Trade show a 74 percent chance policy makers will keep the fed funds rate unchanged when they next meet June 25. The balance of bets is for a quarter- point cut. The ECB has kept its benchmark rate at a six-year high of 4 percent since June to curb inflation.

The U.S. currency increased 1.1 percent against the euro in April on speculation the Fed will stop cutting borrowing costs and European economic growth is starting to slow. The dollar touched $1.6019 per euro on April 22, the lowest level since the 15-nation currency's launch in 1999.

In a sign of increased demand for dollar-denominated assets, the difference in yield, or spread, between two-year German bunds and comparable-maturity U.S. Treasuries has narrowed to 1.46 percentage points from a record high of 1.85 points at the end of March.

The dollar rose against the euro today as investors moved into long-dollar positions, said Neil Jones, head of European hedge-fund sales at Mizuho Capital Markets in London. A long position is a bet the price of an asset will rise.

U.S. consumer spending rose in March, reflecting an increase in prices that is eroding Americans' buying power. The greater-than-forecast 0.4 percent rise in spending followed a 0.1 percent increase the prior month, the Commerce Department said today in Washington. The Fed's preferred measure of inflation rose more than anticipated.


TradingEconomics.com, Bloomberg
5/1/2008 6:15:26 AM