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Sun, Jun 15, 2008 - Page 10 News List

Dollar gains on inflation news, Ireland’s ‘no’ vote


The US dollar gained against the euro and other currencies on Friday as a government report showed a surge in US inflation and as the euro was dented by Ireland’s rejection of the Lisbon Treaty.

The euro fell to US$1.5384 at 9pm GMT, compared with US$1.5435 in New York late on Thursday.

Against the Japanese currency, the US dollar advanced to ¥108.15 from ¥107.91.

The dollar picked up momentum in the wake of the inflation report as traders said it raised the odds that the US Federal Reserve would raise interest rates.

US consumer prices jumped by a more-than-expected 0.6 percent last month, largely as energy costs soared, a US Labor Department survey showed.

Economists said they were not surprised that energy costs leapt higher, but said the report could cause some angst at the Fed as it suggests inflationary pressures are building.

Core consumer price inflation (CPI), which excludes volatile food and energy prices, gained 0.2 percent last month, consistent with market forecasts.

“The figures are likely to fundamentally confirm dollar bulls on the backdrop of widespread inflation fears in the market,” analysts at Commerzbank said.

Michael Woolfolk at Bank of New York Mellon said the relatively tame core inflation reading provided no reason to be complacent about upside risks to inflation.

“Rather, it provides the Federal Reserve with a reason to act sooner rather than later in order to get ahead of rising inflationary expectations in an attempt to head it off,” he said.

The Fed had slashed its key base rate in recent months to 2 percent amid flagging economic growth. The decline in rates and moderating economic growth have weighed down the dollar.

The euro meanwhile came under pressure after the Irish rejected the European Union’s Treaty of Lisbon in a referendum. The Irish rejection threatens to scupper the EU’s political integration process, as all 27 member states need to ratify the treaty for it to take effect.

In late New York trading, the dollar stood at 1.0460 Swiss francs, up from SF1.0416 on Thursday. The pound was at US$1.9481, down from US$1.9465 a day earlier.

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