FOREX-Dollar hits 3-mth peak vs yen on U.S. rate outlook
By Rika Otsuka and Satomi Noguchi
TOKYO, May 23 (Reuters) - The dollar hit a three-month peak against the yen and hovered around a six-week high against the euro on Wednesday, supported by shrinking expectations that the Federal Reserve will cut interest rates later this year.
Dealers further trimmed short dollar positions ahead of U.S. economic data, including durable goods orders and new home sales on Thursday and existing home sales on Friday, that could give more clues on the future path of the Fed's monetary policy.
"Market players keep buying back the dollar," said a trader at a Japanese bank. "Where the dollar is going this week all depends on upcoming U.S. data."
Solid economic data last week gave the dollar a respite from a sell-off that pushed it to a record low versus the euro late last month, boosting expectations that the Fed will leave its key rate unchanged at 5.25 percent for some time.
Traders were watching for any comments from the United States and China as a two-day meeting between Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi concludes in Washington on Wednesday.
A senior Bush administration official said on Tuesday that U.S. and Chinese officials had a "direct exchange of views" on the valuation of the yuan currency, with the U.S. side saying China still needed to allow the yuan to appreciate more rapidly.
The United States argues that an undervalued yuan CNY= gives China an unfair advantage in international trade and is a key driver of the deficit.
The dollar rose as high as 121.71 yen JPY= on electronic trading platform EBS in early Asian trade on Wednesday, its highest since Feb. 13.
Market participants are now focusing on whether the pair will climb beyond 122.20 yen, the highest since December 2002 and this year's peak struck in late January.
The euro barely budged against the dollar, trading at $1.3450 EUR=.
Against the yen, the single currency was up 0.15 percent at 163.65 yen EURJPY=R, remaining within striking distance of a record peak of 163.94 yen hit on Monday.
