Dollar climbs to new 13 1/2 month high versus euro, 10 month high versus yen

Tuesday, July 5th 2005, 10:20 am

By: News On 6

FRANKFURT, Germany (AP) _ The dollar hit a 13 1/2 month high versus the euro and a 10 month high versus the yen amid optimism about the U.S. economy and the prospect that U.S. credit policy would continue to tighten.

Economists expect data being released Friday to show a strong rise in U.S. non-farm payrolls.

``The payrolls data would be very important,'' said Minoru Shioiri, senior foreign exchange manager at Mitsubishi Securities in Tokyo. ``If the data confirm the strength of the U.S. economy and reinforce the view that the Federal Reserve will keep raising interest rates steadily, dollar buying will gain fresh momentum.''

The euro fell as low as $1.1869 _ its lowest point since May 17, 2004, when it bought $1.1872. By midafternoon, however, it had climbed back to $1.1913 _ up from the $1.1897 it bought late Monday.

The dollar also reached a new 10-month high of 112.12 Japanese yen before easing back to 111.77 yen, still up from 111.59 yen on Monday. The British pound slipped to $1.7578 from $1.7590 ahead of a Bank of England meeting on interest rates Thursday.

The euro surged to an all-time high of $1.3667 at the end of December on worries about the wide U.S. trade and budget deficits, but the dollar has since rebounded amid positive U.S. economic data, a series of interest rate rises by the Federal Reserve and political turmoil in Europe.

The European Central Bank also meets Thursday to set rates in the 12-nation euro zone. The bank has held its key refinancing rate at 2 percent for two years, and politicians have called for it to lower borrowing costs in order to spur growth.

International Monetary Fund managing director Rodrigo de Rato, however, said no rate cut was needed.

``We don't see (euro area) growth weakening further right now,'' he said in an interview published by the Frankfurter Allgemeine Zeitung on Tuesday.

During an appearance in the European Parliament on Monday, ECB president Jean-Claude Trichet insisted that differences in inflation rates between euro-zone countries pose no danger _ another sign the bank will stand pat. EU Monetary Affairs Commissioner Joaquin Almunia, meanwhile, urged caution in bringing new countries into the currency, calling for the expansion to be ``approached rigorously and in a farsighted fashion.''