Today Forex News

Dollar Weakens as Bernanke Cites Growth Risk, Inflation Danger

July 15 (Bloomberg) -- The dollar dropped against the euro as Federal Reserve Chairman Ben S. Bernanke told a Senate committee that growth and inflation risks have both increased.

The currency weakened the most against the yen since the March collapse of Bear Stearns Cos. as Bernanke said helping financial markets return to more normal functioning remains ``a top priority.'' The dollar earlier touched a record low versus the euro on concern confidence in Fannie Mae and Freddie Mac will diminish even after the U.S. government pledged support.

``It's hard to find anything dollar positive in the statement,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``Bernanke clearly acknowledged more growth risks than he anticipated a few weeks ago. The problem is coming from the financial sector.''

The dollar declined 0.4 percent to $1.5976 per euro at 10:25 a.m. in New York, from $1.5908 yesterday, and touched $1.6038, the weakest level since the 15-nation currency's debut in 1999. The U.S. currency fell 1.7 percent to 104.35 yen, from 106.14 yesterday. Japan's currency increased 1.3 percent to 166.74 per euro, from 168.89 yesterday, when it weakened to the all-time low of 169.75.

The U.S. currency has given up all the gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he has ``no bias'' on future interest- rate moves.

The dollar strengthened 0.6 percent to $1.5706 per euro that week. It has since slumped almost 2 percent on concern Fannie Mae and Freddie Mac, which buy or finance almost half the $12 trillion of U.S. mortgages, will need a government rescue.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell for a fifth day on the ICE market, dropping as much as 0.8 percent to 71.314, the lowest level since April 23, from 71.915.

Dollar News

Gross Likes Dollar More Than Euro for 1st Time on EU

July 14 (Bloomberg) -- For three years euro bulls used the prospect of higher interest rates in Europe to justify the currency's 32 percent rally against the dollar. No more.

A growing number of the world's biggest investors say a slowdown in the region's economy may be more severe than in the U.S., forcing the European Central Bank to reverse this month's rate increase. By January, the euro will be lower against the dollar, yen and even the pound, according to the median estimate of strategists surveyed by Bloomberg. Bill Gross, manager of the world's biggest bond fund, turned bearish on the euro for the first time since the currency's inception in 1999.

``We might have hit a point where the euro doesn't have a lot to stand on,'' said Emanuele Ravano, co-head of European strategy in London for Gross's Pacific Investment Management Co., which runs the $129 billion Pimco Total Return Fund. ``The euro is ultimately very overvalued. It could be quite a bit lower at some point in time over the next couple of years.''

The euro fell as much as 1.7 percent to $1.5611 in the week following President Jean-Claude Trichet's comments on July 3 that he had ``no bias'' on further changes in borrowing costs after boosting the main refinancing rate to 4.25 percent from 4 percent. Before Trichet spoke the currency traded near a record high on speculation the ECB would signal more than one rate increase was needed to tame inflation. It fell 0.5 percent to $1.5857 as of noon in London today, from $1.5938 on July 11.

Hedge Funds Flee

As the odds that the ECB will lift rates dwindled, hedge funds sold the 15-nation common currency, according to Zurich- based UBS AG, the world's second-biggest currency trader behind Deutsche Bank AG in Frankfurt. New York-based Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, said it's ``increasingly confident'' the euro will fall.

``Capital flows look less supportive for the euro and, with the ECB out of the way, the interest-rate policy would also seem to support our view,'' Stephen Hull, a strategist for Lehman in London, wrote in a research note July 11.

The euro is 30 percent overvalued versus the dollar, based on purchasing power parity, according to Newport Beach, California-based Pimco. That's more than any other currency among the Group of 10 richest nations. Purchasing power parity accounts for differences in the exchange rates of national currencies.

``When a currency gets between 25 percent and 30 percent overvalued it tends'' to revert to the mean, said Ravano. The euro may drop to $1.535 from $1.5938 last week, he said.

Burger Test

The Economist's Big Mac Index, which compares prices for the McDonald's Corp. product globally, shows the hamburger is 22 percent more expensive in Europe than in the U.S.

``We're not far off the capitulation point for the euro,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the investment-banking unit of Credit Agricole SA, France's second-biggest bank. The euro will fall to $1.52 by the end of the third quarter and to $1.45 by April 2009, he said.

The European single currency's gain since December 2005 was spurred by eight increases in the ECB's key refinancing rate.

French President Nicolas Sarkozy complained that the currency's strength was harming the competitiveness of European exporters and risked damaging economic growth. Exports from Germany, Europe's largest economy, declined 3.2 percent in May, the most in almost four years, the Federal Statistics Office in Wiesbaden said July 9.

Gross domestic product in the 15 nations sharing the euro will slow to 1.4 percent in 2009, from 1.7 percent this year, according to the median forecast of 29 economists in a Bloomberg survey. The U.S. economy will grow 1.8 percent next year, from 1.5 percent this year, according to the median of 78 estimates.

`Sharp Slowing'

There are ``concrete signs of a sharp slowing of euro-zone growth,'' Robert Sinche, head of global currency strategy at Bank of America Corp. in New York, wrote in a note dated July 11. Investors should sell the euro against the dollar, he said.

It may be too soon to bet against the euro because the U.S. economy is also slowing, according to Derek Halpenny, head of currency research in London at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest bank by market value. The euro will rise to $1.62 by the end of the third quarter, before falling back to $1.58 in the final three months of the year, he said.

``We're bullish on the euro,'' Halpenny said. ``The real story over the next three months is going to be the obvious and continued downturn in the U.S. economy compared to Europe.''

The ECB will cut the key rate a quarter-percentage point to 4 percent by the end of June 2009, according to the median of 30 economists in a Bloomberg survey. The Federal Reserve has lowered its target rate for overnight loans seven times since September to 2 percent.

`Incredibly Bearish'

``The rally in the euro is over and we're now incredibly bearish on the currency given the outlook for Europe's economy,'' said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, the most accurate foreign-exchange forecaster in a 2007 Bloomberg survey.

The euro will slide to $1.50 by the end of the third quarter and $1.45 by year-end, he said. Redeker is more bearish than most strategists. The common European currency will weaken 5.4 percent to $1.50 by year-end, and slip to $1.45 by mid-2009, according to the median of 37 analysts surveyed by Bloomberg.

``At current levels the euro is an awfully expensive currency,'' said Stephen Jen, chief currency strategist at Morgan Stanley in London and a former Fed economist. ``We see fair value for the currency at around $1.30.''

DOLLAR NEWS

Dollar Falls Versus Euro on Concern Financial Losses to Deepen

July 10 (Bloomberg) -- The dollar fell against the euro on concern losses at financial firms will deepen, prolonging the U.S. economic slowdown.

Treasury Secretary Henry Paulson said in prepared congressional testimony that he's been assured by the regulator for Fannie Mae and Freddie Mac that the two companies have enough capital. The pound dropped versus the dollar and the euro as the Bank of England left its benchmark lending rate unchanged, increasing the risk of a recession.

``The heightened state of uncertainty is putting the dollar on the defensive,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``The overhanging concern about the financial sector is dogging the market here.''

The dollar dropped 0.3 percent to $1.5782 per euro at 10:28 a.m. in New York, from $1.5743 yesterday. The U.S. currency traded at 106.84 yen, compared with 106.76. The euro appreciated 0.3 percent to 168.60 yen, from 168.06.

South Korea's won gained for a fourth day on speculation the government is intervening to halt the currency's decline to curb inflation. The Finance Ministry reiterated today that the government will tackle risks stemming from higher oil costs. The won rose 0.2 percent to 1,002.97 per dollar.

The British pound decreased 0.5 percent to $1.9726 after the central bank kept its benchmark interest rate at 5 percent. Against the euro, sterling dropped 0.4 percent to 79.71 pence.

Weakened Dollar

The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in its target lending rate to avert a recession. Futures contracts on the Chicago Board of Trade show 86 percent odds that policy makers will keep borrowing costs unchanged next month.

Fannie and Freddie tumbled to the lowest level in 17 years in New York trading after former St. Louis Fed President William Poole said in an interview today that chances are increasing that the U.S. may need to bail out the companies.

The dollar fell against the euro yesterday after Fannie, the biggest provider of financing for U.S. home loans, paid a record yield relative to Treasuries on the sale of $3 billion in notes.

``There's a mixture of risk, which seems to be based in the U.S. in the special areas of finance, Fannie Mae and Freddie Mac,'' said Peter Frank, a currency strategist in London at Societe Generale SA, France's second-biggest bank by market value. ``We may see the dollar weakening again against a broad cluster of currencies.''

French Output

The euro weakened against the dollar earlier after reports showed French and Italian industrial production dropped in May more than economists forecast, raising concern European economic growth is slowing.

Output at French factories and utilities fell 2.6 percent from the previous month, the biggest decline since October 2005 the Paris-based statistics office said today. Italian production declined 1.4 percent from April, almost three times the drop forecast by economists in a Bloomberg News survey.

The euro may rise to $1.5909 against the dollar should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The average, currently $1.5715, will provide a level of so- called support for the euro, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The firm's target matches a two-month high set by the 15-nation currency on July 3. Support is an area at which buy orders may be clustered.

The Norwegian krone declined as much as 0.4 percent to 8.0833 per euro after a government report showed inflation accelerated in June less than economists forecast.

Dollar News

Dollar May Extend Gain on Bernanke's Comment, Crude Oil Decline

By Ye Xie and Candice Zachariahs

July 9 (Bloomberg) -- The dollar may rise against the euro for a second day after Federal Reserve Chairman Ben S. Bernanke said the central bank may extend its emergency-loan program for securities firms into next year and crude oil prices tumbled.

The U.S. currency advanced yesterday, erasing losses that came at the start of the week on concern Fannie Mae and Freddie Mac, the two largest mortgage finance companies, may need to raise additional capital.

``Bernanke is telling the market that the Fed will be there if there's any problem,'' said Joe Trevisani, chief market analyst in Saddle River, New Jersey, at FX Solutions LLC, a foreign-exchange brokerage. ``The Fed has calmed down the markets. If oil continues to come down, the dollar may strengthen further.''

Against the euro, the U.S. currency traded at $1.5665 at 6:37 a.m. in Tokyo, after rising 0.4 percent yesterday. The dollar traded at 107.43 yen, following a 0.3 percent increase. Japan's currency was at 168.30 per euro, after a 0.1 percent gain.

The dollar strengthened yesterday as Bernanke said in a speech in Arlington, Virginia, that the Fed is committed to financial stability and is ``considering several options, including extending the duration of our facilities for primary dealers'' beyond year-end.

``Markets are going through another bout of turbulence, and they're willing to act to counter those forces,'' said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, on Fed policy makers. ``That's where the support for the dollar is coming from.'' The firm is the world's largest custodial bank, with about $23 trillion in assets under administration.

Dollar's Decline

The Fed's Primary Dealer Credit Facility, which provides direct loans, and the Term Securities Lending Facility, which auctions as much as $200 billion in Treasuries, were created in March in response to the credit crisis. Both programs are aimed at the 20 primary dealers in U.S. government debt.

The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in the target lending rate, now 2 percent, to prevent the housing slump and credit losses from plunging the U.S. economy into a recession. The European Central Bank raised its main refinancing rate last week to a seven-year high of 4.25 percent.

Richmond Fed President Jeffrey Lacker told reporters in Washington yesterday that the weak dollar may fuel ``inflation pressures,'' echoing Bernanke's comments last month that policy makers are ``attentive'' to the effect of the dollar's decline. Lacker said in a speech yesterday that the central bank should consider raising interest rates to limit inflation as the threat of a steep economic slump begins to fade.

Crude Oil

Bernanke and U.S. Treasury Secretary Henry Paulson are scheduled to testify before Congress tomorrow.

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, yesterday increased as much as 0.6 percent to 73.082, the highest level since June 24.

Crude oil for August delivery fell for a second day, dropping more than 3 percent to $135.90 yesterday. It reached a record high of $145.85 a barrel on July 3. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

China's yuan appreciated 0.2 percent to 6.8511 per dollar, near the strongest since a dollar link ended in July 2005, on speculation the government will allow faster gains in the currency to help curb inflation.

The U.S. currency fell 0.1 percent against the euro on July 7 as a report from Lehman Brothers Holdings Inc. said Fannie and Freddie may need to raise a total of $75 billion because of an accounting change. They have enough capital to survive the housing slump and meet new accounting rules, James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, told Bloomberg Television yesterday.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.

Last Updated: July 8, 2008 17:42 EDT

Dollar Rises to One-Week High as Group of Eight Leaders Convene

Dollar Rises to One-Week High as Group of Eight Leaders Convene

July 7 (Bloomberg) -- The dollar rose to the highest level against the euro in more than a week as leaders of the Group of Eight nations convened in Japan.

The 15-nation euro and the pound dropped against the dollar as German and British industrial production fell in May. The yen weakened against the euro and the dollar as global stocks advanced, reviving demand for higher-yielding assets funded by loans in Japan. President George W. Bush, in Japan for the summit, reiterated support yesterday for a ``strong'' dollar.

``With the G-8 meeting in the background, the near-term sentiment of the dollar is improving,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``They prefer a strong dollar.''

The dollar increased 0.5 percent to $1.5624 per euro at 9:52 a.m. in New York, from $1.5706 on July 4. It touched $1.5611, the strongest level since June 25. The yen dropped 0.8 percent to 107.70 per U.S. dollar, from 106.80. Japan's currency fell 0.3 percent to 168.29 versus the euro, from 167.73.

South Korea's won rose against all of its major counterparts after the government pledged ``stern action'' to stabilize the local currency. The won climbed 0.7 percent to 1,042.90 per dollar, from 1,050.35 on July 4.

The dollar strengthened versus the euro on speculation U.S. officials will say the currency has fallen too far and try to stem gains in oil prices as the G-8 summit gets under way in Japan. Leaders from Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S. are meeting for three days.

Bush on Dollar

Bush said yesterday on the first day of his five-day trip to Japan that the U.S. will continue to pursue a strong dollar.

``The U.S. believes in a strong-dollar policy,'' he said at a news conference with Japanese Prime Minister Yasuo Fukuda in Tokyo. The U.S. economy remains fundamentally strong even as growth has slowed, Bush said.

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, rose as much as 0.6 percent to 73.151, the highest level since June 24.

The U.S. currency also appreciated as crude oil fell after Iran's Foreign Minister Manouchehr Mottaki expressed confidence in talks with Western governments on the country's nuclear program. Organization of Petroleum Exporting Countries President Chakib Khelil said yesterday record oil prices are more related to the dollar exchange rate than supply.

Crude Oil Falls

Crude oil for August delivery fell 1.6 percent to $143.02 a barrel on the New York Mercantile Exchange. Oil reached a record $145.85 a barrel on July 3.

The euro fell against the dollar as German industrial production unexpectedly dropped 2.4 percent in May, its third straight decline, prompting traders to pare bets the European Central Bank will raise the main refinancing rate for a second time this year.

``We do see the euro weaker,'' said Stuart Bennett, a senior European strategist at Calyon, the investment-banking unit of Credit Agricole SA, France's second-biggest lender. ``We are not relaxed about the growth outlook, and it's weaker than the ECB is accepting. Even though we suspect inflation means that they might have to hike again, the growth dynamics for Europe are pointing toward a weaker euro.''

The euro will fall to a range of $1.43 to $1.45 by the end of the year, Bennett predicted.

Trichet's `No Bias'

The 15-nation currency declined last week after ECB President Jean-Claude Trichet said he had ``no bias'' on borrowing costs following the decision to raise the main refinancing rate by a quarter-percentage point to 4.25 percent.

The British pound weakened to the lowest level against the dollar in almost two weeks after U.K. factory output fell 0.5 percent in May. The median forecast of analysts surveyed by Bloomberg News was for no change.

JPMorgan Chase & Co., the third-largest U.S. bank, predicted the Bank of England will keep the target lending rate at 5 percent ``for the time being,'' a change from its previous estimate for higher rates in August.

The pound slid as much as 0.9 percent to $1.9649 against the dollar, the lowest since June 24, from $1.9823 on July 4.

Japan's currency dropped 1.1 percent to 13.97 versus the South African rand and 1 percent to 10.44 against the Mexican peso as a rally in stocks encouraged investors to add to holdings of higher-yielding assets funded in Japan.

The MSCI Asia-Pacific Index gained 0.4 percent, while Europe's Dow Jones Stoxx 600 Index strengthened 1.7 percent. The Standard & Poor's 500 Index climbed 0.9 percent.

In the carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates. Japan's target lending rate of 0.5 percent is the lowest among major economies and compares with 12 percent in South Africa and 7.75 percent in Mexico.

Dollar VS Euro NEWS

Dollar Little Changed Versus Euro Before Fed Decision on Rates

June 25 (Bloomberg) -- The dollar was little changed against the euro before the Federal Reserve ends a two-day meeting at which policy makers are forecast to keep the target lending rate at the lowest level in more than three years.

The dollar pared its decline as crude oil prices fell on an unexpected increase in inventories, reducing the need to sell the U.S. currency as a hedge against inflation. Fed Chairman Ben S. Bernanke said on June 9 the central bank would ``strongly resist'' a leap in inflation expectations.

``The Fed will fall short of the most hawkish of expectations,'' said Nick Bennenbroek, head of currency research at Wells Fargo & Co. in New York. ``The dollar will come under a little bit of pressure.''

The dollar traded at $1.5575 per euro at 10:51 a.m. in New York, compared with $1.5568 yesterday. The dollar rose 0.2 percent to 108.07 yen, from 107.82. The euro increased 0.3 percent to 168.32 yen, from 167.85, and touched 168.46, the strongest level since July 23.

The Norwegian krone advanced to a two-week high against the dollar after Norges Bank increased its target lending rate to 5.75 percent. The krone strengthened 0.3 percent to 5.0989 per dollar and touched 5.0854, the highest level since June 10. The central bank's decision had been expected by nine of the 20 economists surveyed by Bloomberg News.

The U.S. currency has fallen from a one-month high of $1.5303 per euro reached on June 13, four days after Bernanke said economic risks have faded and accelerating inflation ``would be destabilizing for growth.''

Fed Rate Outlook

The Fed will keep the 2 percent target lending rate unchanged today, all 102 economists surveyed by Bloomberg News predict. The chance policy makers will increase borrowing costs by a quarter-percentage point is 10 percent, compared with 14 percent odds a week ago, futures contracts on the Chicago Board of Trade show. The chance the Fed will raise the rate by at least a quarter-percentage point in August is 39 percent.

New home sales fell to an annual pace of 512,000 in May, from a revised 525,000 the prior month, the Commerce Department reported today in Washington.

Orders for durable goods excluding transportation items dropped 0.9 percent in May after a revised 1.9 percent increase the prior month, the Commerce Department also said. The median forecast of 38 economists surveyed by Bloomberg News was for a decrease of 1 percent.

`Growth Concerns'

``Due to the underlying growth concerns, it will be very difficult for the Fed to hike rates this year,'' said Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto. ``That means the market has gotten a little bit ahead of itself pricing in rate increases, and the dollar will come under pressure.''

The dollar has gained 1.3 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers.

European Central Bank President Jean-Claude Trichet left open today the option of raising interest rates again after July to contain accelerating inflation. He told the European Parliament in Brussels that inflation in the euro area has ``intensified further in recent months'' and that the bank is in a state of ``heightened alertness.''

The euro may rise to a record 169 yen should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The current five-day moving average is 167.59 and represents a level of so-called support, said Tokyo-based Hashimoto, citing technical charts traders use to predict price movements. The euro reached a record high of 168.99 yen on July 23. Support is an area where buy orders may be clustered.

``Should the euro stay beyond its five-day moving average, and should the average show the upward trend, the euro will have a high chance to reach its record high,'' Hashimoto said.

Dollar news

Dollar Falls as New York Factories Contract, G-8 Stops Short

June 16 (Bloomberg) -- The dollar fell the most against the euro in more than a week as New York state manufacturing shrank in June and the Group of Eight's weekend summit stopped short of calling for a strong U.S. currency.

An index tracking the dollar against the currencies of six major U.S. trading partners dropped from the highest level since February. The Norwegian krone was the biggest gainer versus the dollar among the major currencies and the Canadian dollar appreciated the most against the greenback in almost a month as crude oil surged to a record $139.89 a barrel.

``There's further room for disappointment for dollar bulls,'' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. ``The economy is still weak. There was too much expectation for the G-8 to say something to support the dollar.''

The dollar declined 0.6 percent to $1.5464 per euro at 10:58 a.m. in New York, from $1.5380 on June 13. The U.S. currency traded at 108.27 yen, compared with 108.19. The yen dropped 0.7 percent to 167.43 versus the euro, from 166.35, and touched 167.68, the weakest level since Oct. 15.

The U.S. currency fell 0.9 percent to 5.1825 against the Norwegian krone and 0.6 percent to C$1.0236 versus the Canadian dollar as crude oil surged. Commodities such as oil and gold make up half of Canada's exports, while Norway is the world's fifth-largest oil producer.

The dollar falls against the euro when oil rises 93 percent of the time, according to Bloomberg calculations based on value changes. Crude oil for July delivery rose to $137.93 a barrel after touching the all-time high.

`Under Pressure'

``As long as oil keeps rallying, the dollar will be under pressure,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.

The yen fell to an eight-month low versus the euro as reduced currency volatility encouraged investors to buy higher- yielding assets funded by low-cost loans in Japan.

Japan's currency dropped 0.9 percent to 212.50 versus the pound and 0.3 percent to 81.33 against the New Zealand dollar as investors increased carry trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 2 percent in the U.S., 4 percent in the euro zone, 5 percent in the U.K. and 8.25 percent in New Zealand.

The risk that fluctuating exchange rates will erase carry- trade profits fell. Implied volatility on one-month euro-yen options dropped for a fourth day, declining to 10.09 percent, from 10.31 percent on June 13.

Dollar Versus Yen

The U.S. currency will rise to 110 against the yen by year- end from a previous estimate of 103, and will climb to 112 by the end of March, from a previous forecast of 105, Tokyo-based JPMorgan Chase & Co. currency strategists Tohru Sasaki and Junya Tanase wrote in a research note today.

The U.S. Dollar Index traded on ICE futures decreased for the first time in three days, falling 0.6 percent to 73.73. It touched 74.314 on June 13, the highest since Feb. 28.

The U.S. currency weakened versus the euro as a gauge of New York state manufacturing dropped. The New York Fed's general economic index decreased to minus 8.7 in June from minus 3.2 the prior month. Readings less than zero signal contraction. The New York Fed began its Empire State gauge in 2001.

The euro rose earlier versus the dollar after the European Union's statistics office reported that the inflation rate rose to 3.7 percent in May, the highest level since June 1992.

G-8 Meeting

The G-8, which comprises the U.S., Japan, Russia, Germany, France, the U.K., Italy and Canada, stuck to its practice over the weekend of not making a joint comment on currencies when central bankers are absent.

``The world economy continues to face uncertainty, and downside risks persist,'' G-8 officials said in a statement on June 14 after a meeting in Osaka, Japan. ``Elevated commodity prices, especially of oil and food, pose a serious challenge.''

The U.S. currency rose last week the most against the euro since 2005 as Federal Reserve Chairman Ben S. Bernanke said economic risks have faded, raising speculation policy makers will increase borrowing costs this year to contain inflation. The yield on two-year Treasury notes posted its biggest weekly increase in 26 years last week, rising 66 basis points to above 3 percent.

``The perception that the Fed will hike rates is still strong,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``Short-term rates have risen quite sharply the last couple of weeks, and that will keep the dollar sustained.''

The dollar will strengthen 3 percent to $1.50 per euro by year-end, according to the mean estimate of 39 firms surveyed by Bloomberg. Economists anticipate that the ECB will raise rates a quarter-percentage point by September and then cut borrowing costs by year-end. The Fed will boost rates three-quarters of a percentage point by the end of the third quarter of 2009, according to data compiled by Bloomberg.