Originally created 06/12/04

Dollar strengthens against major rivals



NEW YORK - The dollar climbed to its highest level in two weeks against its European counterparts Friday, drawing strength from another series of comments by Federal Reserve officials that raise the prospect of more aggressive rate hikes if inflationary pressures continue to build.

Fed Chairman Alan Greenspan started the ball rolling earlier in the week when he pledged that policymakers are "prepared to do what is required" to maintain price stability.

After a bout of profit-taking Thursday, the dollar got a second wind overnight following a hawkish news agency interview late Thursday with Federal Reserve Bank of St. Louis President William Poole. He was quoted by Reuters as saying that if inflationary pressures build more than expected, policymakers should raise rates "further and faster" than the markets have priced in.

The latest suggestion that policymakers were prepared to be more aggressive if necessary helped boost the dollar to levels not seen since late May. Higher U.S. interest rates stand to benefit the dollar by helping to attract enough foreign investment to finance the huge current account deficit.

The euro was quoted at $1.2011 in late European trading, down from $1.2081 Thursday.

As most U.S. financial markets were closed Friday in observance of the national day of mourning for former President Ronald Reagan, trading activity virtually ground to a halt after desks in London shut down for the weekend.

Other dollar rates in Europe, compared to late Thursday, included 110.12 Japanese yen, up from 109.50; 1.2586 Swiss francs, up from 1.2477; and 1.3623 Canadian dollars, up from 1.3589.

The British pound was quoted at $1.8181, down from $1.8293.

Fed officials speaking Friday also sought to reassure markets that the central bank would remain vigilant in fighting inflation, though the comments had little effect on a hushed market.

Federal Reserve Bank of Atlanta President Jack Guynn warned Friday that the Federal Open Market Committee's stated intention to raise rates at a "measured" pace was "more of a plan than a pledge."

While inflation levels are "acceptable," Guynn echoed Greenspan's comments earlier in the week that the central bank would act as needed to keep price pressures in check.

Later, Federal Reserve Bank of Cleveland President Sandra Pianalto said that "broad-based inflation pressures have yet to emerge" in the U.S. economy, though she added that recent data on prices gave her "reason for pause."

Nonetheless, she expressed confidence that the FOMC "will act, as necessary, to preserve the hard-won gains it has already achieved."