Dollar holds near recent peaks before US data

London, Nov 16 | Updated: Nov 17 2005, 05:30am hrs
The dollar held firm near the previous sessions two-year high against the euro and 27-month peak versus the yen on Wednesday ahead of US inflation data which could underpin expectations for higher interest rates. The dollar hit highs before Tuesdays testimony by Ben Bernanke, the nominee for Federal Reserve chairman, who reinforced the markets view that the Fed would keep raising rates.

But speculators and investors rushed to cash in on the dollars big gains around 7.5% against the euro and 9% versus the yen since September. Theres no change in dollar sentiment. Some in the market were expecting Mr Bernanke to be a bit more outright on inflation targeting and more hawkish on this perspective but it doesnt change the trend of dollar strength, said Micheal Klawitter, senior currency strategist at West LB in Duesseldorf.

The technical picture does not favour the euro, he added. The dollar was virtually unchanged from late New York trading levels against the euro at $1.1726 after hitting a two-year high of $1.1638.

One focus for traders is important technical support for the euro around $1.1590, the first major retracement level of the entire rise from 2000 to December 31, 2003.

The dollar was up 0.2% to 119.10 yen, holding close to a 27-month high of 119.42 yen. The core US consumer price index, which excludes volatile food and energy items, is expected to be up 0.2% in October compared with a 0.1% rise in the prior month.

The dollar has benefited from US firms repatriating overseas earnings under a one-time tax break that expires at year-end, while prospects for higher interest rates have lured even more investors to the currencys deposits and US bonds.

The Feds 16-month campaign to tighten credit has taken the overnight rate to 4% from 1%. Several economists see the US rate rising to at least 4.5% next year, compared with the euro zones historic low of 2% and near 0% in Japan.