The dollar rose against the euro and yen before a report that may show
a rebound in U.S. retail sales, giving the Federal Reserve more reason
to raise interest rates to curb inflation.
The U.S. currency gained for a third time in four days before the
Commerce Department report that will probably show consumers increased
spending in May using tax rebates.
U.S. retail sales probably increased 0.5 percent in May following a 0.2
percent drop the prior month. The Commerce Department is scheduled to release the report due
at 1230 GMT.
``The market's expecting a relatively good report'' on retail sales,
said Paul Robson, a currency strategist in London at Royal Bank of
Scotland Group Plc, the U.K.'s second-biggest lender. ``The dollar may
be picking up as interest rates in the U.S. are quite low, which may
help the market have more confidence that the Fed will tighten policy
more than the European Central Bank.''
Traders now bet Fed policy makers are more likely to raise interest
rates in August than to leave them unchanged. Fed funds futures on the
Chicago Board of Trade show a 51 percent probability policy makers will
raise rates by at least a quarter -percentage point in August, compared
with no chance a week ago.
The dollar has risen 2.2 percent against the euro this week after Fed Chairman Ben S. Bernanke said the risk of a deeper U.S. economic slowdown is receding. It's up 1.1 percent versus the yen.
Losses in the euro may be limited by speculation ECB council members Guy Quaden and Axel Weber will highlight inflation risks in speeches today, raising expectation of higher interest rates.
The dollar declined 0.5 percent yesterday after ECB council member
Athanasios Orphanides said policy makers may increase the 4 percent
main refinancing rate more than once in coming months based on
``subsequent data developments.''
``We expect the ECB will raise rates three times this year while the
Fed keeps them on hold,'' said Masafumi Yamamoto, head of
foreign-exchange strategy in Tokyo at Royal Bank of Scotland Group Plc,
the world's fifth-largest foreign-exchange trader. ``Expectations of
higher ECB rates will support the euro in the short term,'' which may
move between $1.53 and $1.58 against the dollar in one month, he said.