Dollar holds near five-month high

The dollar hit a five-month high against the yen on Tuesday while it held within a cent of recent six-week peaks on the euro ahead of this week's US data which could bolster the case for further interest rate hikes. The week - packed with potentially dollar positive figures - will see US consumer confidence, prices inflation and non-farm payrolls data as well as a key manufacturing survey.
Strong readings from the data could prompt the Federal Reserve to quicken the pace of rate tightening. The Fed raised interest rates for a seventh consecutive month last week and warned inflationary pressures have picked up.
"The tail end of this week is where the risks are building up," said Trevor Dinmore, currency strategist at Deutsche Bank.
"We believe US yields are heading higher and that will lend short-term support for the dollar. Euro/dollar's correction and unwinding of carry trades have further to go."
The dollar had risen as high as 107.38 yen, according to electronic trading system EBS, its highest level since late October, before easing to 107.27 by 1130 GMT.
The euro stood at $1.2914, up a quarter of a percent on the day, having fallen to a six-week low of $1.2853 on Monday.
The dollar has rallied in the past week after the Fed suggested in its post-meeting statement that it might raise rates more aggressively if inflation heats up. Year-to-date, the dollar is up around 4.5 percent against the euro.
Most market players expect the US central bank to keep raising the benchmark federal funds rate, with some forecasting a rise to around 4 percent by the end of 2005, from the current 2.75 percent.
Friday's US payrolls report is expected to show that 220,000 new jobs were created in March, down from 262,000 in February, which was the biggest gain in four months. The US consumer confidence index, due later on Tuesday, is expected to fall slightly to 103.0 in March from 104.0 in February.
The yen has underperformed other major currencies. It hit one-week lows against the euro and sterling on Tuesday.
Some say Japanese data showing a higher jobless rate and a fall in household spending as well as a 1.6 percent fall in Tokyo stocks weighed on the yen.