Dollar gains on hope of higher rates

LONDON: The dollar traded near five-week highs against the euro yesterday, underpinned by prospects of another quarter-point interest rate hike by the US Federal Reserve later this month, analysts said.

The euro was undermined meanwhile by a leading confidence index in Germany which fell sharply this month.

The euro eased to $1.2568 in late European trading from 1.2588 late on Monday in New York.

The dollar traded for ??115.11, up from 114.38 on Monday.

US economic data released yesterday backed the case for another interest rate increase by the Fed when it meets on June 29.

Figures from the Labour Department showed US wholesale prices up a monthly 0.2% in May and those excluding food and energy rising by 0.3%.

Though the rise in the headline producer price index (PPI) was half what had been expected, the second, core rate was higher than the 0.2% forecast.

Meanwhile, the Commerce Department reported that retail sales rose a modest 0.1% in May, in line with most forecasts. Excluding the volatile auto sector, sales rose a more robust 0.5%, again in line with forecasts.

???The data does nothing to derail a rate hike at the end of the month,??? commented ECU Group chief economist Neil Mackinnon.

In particular, he noted that the increase in the core PPI would have the most influence on rate-setters given their concerns about underlying inflation.

Last week, the new Fed chief Ben Bernanke noted the ???unwelcome??? rise in core inflation measures. ??“ AFP