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Dollar holds early gains

at European midsession

LONDON: The dollar continued to build on gains made in early trade, setting a 26-month high against the yen and holding above 1.4850 marks by the European midsession.

Strong U.S. March non-farm payroll data released last Friday reduced the p The fall in orders confirmed the subdued condition of the German economy and reinforced comments made earlier in a German newspaper by Bundesbank President Hans Tietmeyer.

With no new inflation expectations, Tietmeyer said there was no reason at present to raise German interest rates. The Bundesbank was also examining the scope for another small easing in German rates.

The dollar was trading at 1.4852/57 marks at 1058 GMT after touching earlier a session high just above 1.4865 marks. Dollar/mark traded at 1.4800/05 late Thursday in Europe.

The U.S. payroll data has diminished the prospect of lower U.S. interest rates which are expected to remain at the current 5.25 percent Federal funds rate for now.

"I think things have come to a head in the U.S. A tightening will come, but not before the (U.S. presidential) elections," said Steve Barrow, economist at Chase Investment Bank in London.

This U.S. rate outlook helped push the dollar above 108 yen and on to a 26-month high of 108.15 in early trade today.

By the European midsession, dollar/yen was trading at 108.05/12 compared with late Thursday's level of 107.00/10 yen.

Steady, or even higher, U.S. rates will ease some of the pressure the dollar faced last week on indications that the easy monetary policy of the Bank of Japan could be tightened.

"The dollar has been helped by the official line that monetary policy will remain unchanged," said the U.S. bank dealer. "And with the interest rate pickup between U.S. and Japan, it makes sense to hold dollars."

However, offers at 108.10-15 and above would make the dollar's progress above these levels difficult, said dealers.

The dollar was firm against the European currencies, posting solid gains against the Swiss and French francs.

Dollar/Swiss was trading at 1.2013/23 compared with late Thursday's 1.1955/65. Against the French franc, the dollar stood at 5.0655/65 against 5.0437/62 francs on Thursday.

The dollar firmed against the Swedish crown following the Riksbank's decision to cut its key repo rate to 7.15 percent from 7.40 percent and was trading at 6.6943 crowns.-Reuter