Dollar heads back to 2-yr highs

Tokyo, Nov 18 | Updated: Nov 19 2005, 06:17am hrs
The dollar pushed back toward two-year highs against the euro and the yen on Friday, shaking off a bout of profit-taking as investors see the US currency extending its rally driven by a widening interest rate advantage.

The yen remained on the back foot even after comments from Bank of Japan (BoJ) Governor Toshihiko Fukui, who reiterated on Friday the chance was growing that the central bank would alter policy in the fiscal year from March 2006.

Mr Fukuis comments came after a two-day meeting at which the central bank kept its ultra-loose policy unchanged, as expected, and said it saw consumer prices flatting out or rising by the year end, after around seven years of stubborn deflation.

While many analysts expect the central bank to end its ultra-loose quantitative easing policy next year, most do not see the BOJ raising rates from virtually zero until some time after the policy shift.

In contrast the Federal Reserve is expected to press on with its campaign of 12 straight rate rises in coming months, and many analysts see the European Central Bank raising its target rate in December from an historic low of 2%. Overall sentiment is still bullish on the dollar due to the whole interest rate differential story, said Noriyuki Kato, treasury manager at State Street Global Markets in Tokyo.

Criticism from PM Junichiro Koizumi and other top officials that the BoJ should be cautious about changing policy had helped push the yen lower earlier in the week, raising speculation that the central bank might wait even longer before raising rates.