Dollar set for fourth week of gains, climbs back towards 145 yen By Reuters

By Amanda Cooper

LONDON (Reuters) – The dollar headed for a fourth weekly gain on Friday even after data showed U.S. inflation did not pick up as strongly as expected in July, reinforcing the existing view among investors that the Federal Reserve is unlikely to raise rates much more.

The stronger dollar put the Japanese yen on course to test a key support level, though liquidity was thin with Japan on holiday on Friday.

The dollar was last at 144.58 yen having earlier climbed as high as 144.89 yen, its highest since June 30 when it briefly breached 145, a level at which investors think the Bank of Japan might start warning of intervention.

“You should expect the rhetoric once yen gets to 145,” said Bank of Singapore currency strategist Moh Siong Sim. “I think the market will get a lot more careful as we get to that level.”

Japan intervened in currency markets last September when the dollar rose past 145 yen, which prompted the Ministry of Finance to buy the yen and push the pair back to around 140 yen. The yen is down over 9% against the dollar for the year.

Meanwhile, sterling rose for the first time in four days after data showed the British economy grew more than expected in June, allaying some concern about the impact of high inflation and high rates on activity.

The pound was last up 0.34% at $1.2719, but was still heading for a fourth weekly drop. [GBP/]

Friday’s moves were happening in the shadow of the previous day’s U.S. data which showed consumer inflation rose 0.2% last month, matching the gain in June, and by 3.2% in the 12 months through July.

Futures traders now place a near-90% chance of the Fed leaving its benchmark interest rate in its current range of 5.25-5.5% when it meets in September. Prior to the inflation data, that chance was already above 85%.

The , which measures the U.S. currency against six others, eased 0.1% to 102.50 on Friday, but was still set for a fourth weekly gain.

“From a dollar point of view, we think the recent price action denotes a reluctance to rotate away from the greenback given the emergence of concerning stories in other parts of the world,” said Francesco Pesole, currency strategist at ING in a note.

“If economic slowdown alarms are flashing yellow in Washington, they are flashing amber in Frankfurt and Beijing.”

Elsewhere on Friday the euro was up 0.1% at $1.0992, and the Swiss franc was a touch firmer at 0.8757 per dollar.

The Australian dollar rose 0.12% to $0.652.