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FX round-up: Rate rise talk lifts dollar

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Date: Wednesday 23 Jul 2008

LONDON (ShareCast) - Hawkish comments on US interest rates from Philadelphia Federal Reserve Bank President Charles Plosser lifted the US dollar Tuesday.

Plosser, who voted against central bank rate cuts in April and May, suggested US interest rates would have to rise “sooner rather than later” in order to combat inflation.

Treasury Secretary Henry Paulson also did his bit to talk up the value of the US currency, saying after a speech he gave in New York that a strong dollar is “very important”

The greenback rallied by nearly one and a half cents against the euro in New York trading, and advanced by one yen to close adjacent to a two-week high against the Japanese currency.

In London, sterling lost ground to the US dollar in the afternoon after Plosser’s comments, slipping to around $1.9992 before retreating further in New York trade.

Earlier in the day sterling had climbed to $2.0075, despite the signs of a deterioration in the UK economy. At present, dealers seem to be buying the Bank of England’s line that the temptation to cut interest rates needs to be resisted, and this is lending support to the British currency.

Minutes from the most recent meeting of the Bank of England'’ Monetary P0olicy Committee will be released later today.

The value of the euro declined to 79.40p in London.

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