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Dollar hits three-month high against yen

Sterling climbed against major rivals on expectations that British interest rates will rise further, they added.

The dollar hit 121.88 yen on Wednesday, the highest point since February 13. Later in European trade, the dollar stood at 121.71 yen, compared with 121.55 yen late on Tuesday in New York.

The euro fell to 1.3437 dollars, from 1.3447 dollars on Tuesday.

“The dollar continues its grind up against the yen seen over the last two and a half months,” ABN Amro analyst Greg Gibbs said.

“Strength in the dollar has also been reflected against sterling, Australian dollar and New Zealand dollar in recent weeks largely on the back of improving perceptions of the US economy,” he added.

Sentiment on the US economy has brightened following better-than-expected jobless claims, a surprise rebound in new home construction and an unexpected strong rise in industrial production.

Market players were waiting for April existing home sales due this Friday while watching Wall Street’s strong performance to gauge the outlook, said Masaki Fukui, senior market economist at Mizuho Corporate Bank.

“Traders are buying back the dollar as they continue to digest a series of robust economic indicators released last week,” Fukui added.

Meanwhile hawkish comments from Federal Reserve Bank of Richmond president Jeffrey Lacker fanned doubts about whether the US central bank would cut interest rates this year, dealers said.

Lacker, who has a reputation as a tough inflation fighter, said in an interview with CNBC that holding the Federal Funds rate at the current level for the next two years would probably not be enough to bring lower inflation.

Lacker dissented several times last year with the Fed’s decision to hold rates steady, arguing for the need to raise them again to control inflation. He is not a member of the rate-setting board this year.

“Although a non-voting member, Lacker’s comments added to expectations that the Fed was not likely to cut interest rates this year,” National Australia Bank strategist John Kyriakopoulos wrote in a note to clients.

Elsewhere, sterling rallied after the Bank of England said some of its policymakers had mulled raising British interest rates by half a point to 5.75 percent earlier this month to tackle high inflation.

Despite talk of a possible half-point rate rise earlier in May, the central bank’s nine-strong Monetary Policy Committee voted unanimously to raise its key borrowing cost by a quarter of a point to 5.25 percent, according to the minutes of the meeting published Wednesday.

“It now looks likely that interest rates will rise again to 5.75 percent in June,” Capital Economics analyst Jonathan Loynes said.

He also forecast that they would hit 6.0 percent in August.

In early European deals on Wednesday, the euro changed hands at 1.3437 dollars, against 1.3447 dollars late on Tuesday, 163.55 yen (163.47), 0.6795 pounds (0.6810) and 1.6522 Swiss francs (1.6536).

The dollar stood at 121.71 yen (121.55) and 1.2295 Swiss francs (1.2296).

The pound was being traded at 1.9774 dollars (1.9744).

On the London Bullion Market, the price of gold slipped to 658.40 dollars per ounce, from 662 dollars late on Tuesday.