Rate speculation lifts dollar

THE DOLLAR rose yesterday as traders began to anticipate higher US interest rates by the end of next week, writes Diane Coyle.

Dealers said figures on the US economy published in the next few days could lead the Federal Reserve to increase rates at or soon after a meeting of its policy committee on 16 August if they show inflationary pressure building up.

Currency markets were swept, too, by rumours of the illness of the new North Korean President and Japanese investors' interest in auctions of US government bonds this week.

The dollar closed higher in London against the yen in quiet trading, Y0.91 up at Y101.4. It continued to strengthen in New York after the London foreign exchanges closed.

Traders said investors were getting into a position to benefit from higher US interest rates and the US Treasury auctions, starting today, when the government is selling dollars 40bn worth of bonds to refinance the budget deficit.

The dollar has recently drifted back up against the yen after falling below the psychologically important Y100 barrier in early June.

Steve Barrow, an economist at Chemical Bank, said there was unlikely to be renewed pressure on the US exchange rate until September, when the markets would focus on the next deadline in the trade dispute between the US and Japan.