By Satomi Noguchi
TOKYO, June 5 (Reuters) - The dollar inched up against the
euro and other major currencies on Thursday, extending gains made
the previous day after Federal Reserve chief Ben Bernanke
emphasised inflation concerns, yet another sign the central bank
is likely done with cutting rates.
Bernanke said on Wednesday that rising inflation expectations
were a "significant concern", a day after he gave a rare warning
that a weak dollar was adding to price pressures, giving a boost
to the U.S. currency.
Wednesday's unexpectedly strong U.S. services and
private-sector jobs data reinforced views that the Fed could even
raise interest rates later this year, providing support to the
dollar before a pivotal national payrolls report on Friday.
Traders said the dollar drew some of its strength from a
large drop in oil prices this week away from record highs hit
last month, helping it gain against the euro. Both U.S. crude oil
<CLc1> and the euro hit three-week lows in Asia.
Market players are now looking ahead to see what the European
Central Bank and Bank of England say after their respective
policy meetings wrap up later in the day, as major central banks
grapple with both slowing growth and accelerating inflation.
"Foreign funds seem to be rushing to cover their dollar-short
positions, pushing the euro lower despite risks that the ECB is
likely to repeat its stance for higher rates, which could give a
boost to the single currency," said Hiroshi Yoshida, a trader at
Shinkin Central Bank.
But a flurry of new worries about credit crisis fallout on
the U.S. financial system limited the dollar's gains, especially
against the yen.
Moody's said it would likely cut the credit ratings of the
bond insurance arms of MBIA Inc <MBI.N> and Ambac Financial Group
<ABK.N>, traders said. []
Downgrades of the world's biggest bond insurers would hurt
the ratings of the securities they insure and hit financial
institutions around the world.
Reports this week that Lehman Brothers <LEH.N> may need to
raise capital have rattled investors before U.S. investment
banks, which have been on the front lines of the subprime
mortgage crisis, report quarterly results later in the month.
"The market looks to be moving in favour of the dollar," said
Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ
Securities.
"But it is tough to follow that trend aggressively now, after
seeing choppy trades repeated without a single factor that would
give decisive direction in the market," Shioiri said.
The euro fell 0.2 percent from late U.S. trade to $1.5392
<EUR=> and hit a three-week low of $1.5385, well off a record
high of $1.6020 in April.
Investors awaited a post-meeting news conference by ECB
President Jean-Claude Trichet for clues on the policy outlook,
with a rate hike expected in the months ahead. The ECB is seen
keeping rates on hold at 4 percent.
The Bank of England is widely expected to keep rates steady
at 5 percent, trying to balance a surge in inflation pressures
with mounting signs of distress in the British housing market.
The dollar edged up 0.2 percent against the yen to 105.51 yen
<JPY=>, back near a three-month high of 105.88 yen hit last week.
The New Zealand dollar fell sharply after the country's
central bank held interest rates unchanged at 8.25 percent, as
widely expected, and said it was likely to lower them later this
year. []
The kiwi slid about 2 percent from before the Reserve Bank of
New Zealand's decision to $0.7655 <NZD=D4>. Adding fuel to the
losses were comments by RBNZ Governor Allan Bollard that the
currency's drop was to be expected.
The New Zealand dollar also tumbled against the Australian
dollar to hit a six-year low <AUDNZD=R> as the Australian central
bank kept rates on hold earlier this week and said it was
appropriate to leave rates at 7.25 percent for the time being.
(Editing by Michael Watson)
