Dollar Rises After Hoenig Says Inflation May Spur Rate Increase

Bloomberg reports: The dollar advanced against the euro and the yen after Federal Reserve Bank of Kansas City President Thomas Hoenig said ``serious'' inflation pressures may prompt the central bank to raise interest rates.

The U.S. currency snapped two days of losses versus the euro as the yield spread between Treasuries and German bunds narrowed to the least in two months after Hoenig said the U.S. economy will recover this year. The pound dropped against the dollar and euro after an industry survey showed U.K. consumer confidence fell in April to the lowest in at least four years.

Hoenig's comments ``reinforced a view that the Fed has less room to cut rates because there's inflation concern,'' said Mitul Kotecha, head of global currency strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. ``It suggests there's less room for the dollar to fall going forward.''

The dollar climbed to $1.5496 against the euro as of 9:38 a.m. in London, from $1.5532 in New York yesterday, when it fell to $1.5594, the lowest level since May 1. The U.S. currency also rose to 105.15 yen, from 104.77 yen. The euro was little changed at 162.74 yen, from 162.71.

``There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it,'' Hoenig, a non-voting member of the Fed this year, said in a speech in Denver late yesterday.

Dollar falls against euro on ECB interest rate signals

Associated Press

Thu May 8

0