The dollar rose against the euro and the yen yesterday, and was on track for its best week in over three years against a basket of currencies as investors focused on a weekend meeting of G8 finance ministers.
The US currency benefitted last week as the government and Federal Reserve took aim at inflation and its impact on the dollar, raising the prospect of dollar-buying intervention. A further boost came on Thursday as US retail sales data surprised on the upside.
The US currency could derive further support if US Treasury Secretary Henry Paulson and other finance ministers attending a Group of Eight finance ministers meeting in Japan issue dollar-supportive comments. "If the tone of [the G8] statement is unchanged from the last meeting when coordinated action was mentioned, this would give more support to the dollar," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
However, Bank of Japan Governor Masaaki Shirakawa said governments should not single out the impact on forex when guiding policy. The euro has lost four cents against the dollar since Monday as European Central Bank board members dampened expectations for a series of rate hikes after flagging a rise in July. By 0852 GMT, the euro was down 0.3 per cent at $1.5394. The dollar index was up 0.2 per cent at 73.959, up two per cent on the week and heading for its biggest weekly gain since spring 2005.