Dollar gains on the euro on rate rise signals (Bloomberg) (29-05-2008)

May 29 (Bloomberg) -- The dollar gained to a two-week high against the euro after the Dallas Fed President’s comments that the central bank will raise interest rates should if inflation accelerates. The U.S. currency also gained against the yen before a U.S. government report today that will probably show the economy grew at a faster pace than initially estimated last quarter.

The dollar rose to $1.5576 per euro, the strongest since May 20, before trading at $1.5583 at 7:32 a.m. in London from $1.5638. It advanced to 105.03 yen, after rising yesterday to 105.31 yen, the strongest since May 14. The yen was at 163.70 per euro after touching 164.48 yesterday, the weakest since April 24. The dollar may rise to $1.45 a euro and 110 yen this year, Nagasaki said.

Against the Australian dollar, a favorite of so-called carry trades, the yen declined to 101.02, the weakest since Nov. 14. The MSCI Asia Pacific Index of regional shares rose the most in more than a month as concern eased the U.S. economy will slow.

In the carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the difference between the two. The risk is currency moves erase those profits.

  Source Bloomberg