The dollar rose to a five-month high against the euro on Monday as the market shrugged off the outcome of a Group of Seven (G7) meeting and returned its focus to the chances of a near-term rise in US interest rates.
The communiqué issued by the finance ministers and central bank chiefs of the G7 on Saturday repeated verbatim the language used at the end of the previous meeting in February, giving the market little to work with.
"With the G7 meeting out of way, the market's theme is whether the US recovery is gaining momentum, and whether the Fed will hike rates," said Shogo Nagaya, foreign exchange manager at Nomura Trust and Banking Corp.
The dollar rose to $1.1760 per euro - its highest level since late November. It was around $1.1787, still up from 1.1845 in late New York trade on Friday.
"The euro could fall much more given that the European Central Bank could cut rates," Nagaya said.
After the G7 meeting, ECB President Jean-Claude Trichet took a stance well-rehearsed in recent weeks, saying the central bank had no policy bias and that all options were open on what to do with interest rates.
But a European Union source said that both German Finance Minister Hans Eichel and French Finance Minister Nicolas Sarkozy had urged the ECB at the G7 meeting to cut rates to boost growth in the euro zone.
Some traders said that speculation on an ECB rate cut could rise if the German Ifo institute's key business climate survey for April, due at 0800 GMT, confirms a deterioration in the euro zone's biggest economy.
Economists' forecasts for the headline index range from 94.4 to 96.0, compared with 95.4 in March.
"Dollar bulls are relieved that the G7 came up with no surprises, and as an extension of the pre-G7 trend, the market is continuing to bet the euro has the most to lose against the dollar," said Shinichi Takasaka, a forex manager at Mitsubishi Trust and Banking Corporation.
The dollar was capped versus the Japanese currency, trading around 108.94 yen, hardly changed from late Friday levels.
Blocking the dollar for now was a considerable amount of selling by Japanese exporters ahead of a succession of national holidays, known as Golden Week that kicks off on Thursday.
But some traders said the dollar could revisit its five-month high above 112 yen hit last month, carrying over recent strength.
"I think the dollar has hit a bottom and that it will rise in the longer term," said Mitsuo Imaizumi, deputy general manager of the international bond and forex department at Daiwa Securities SMBC.
"But given that there are those who still think dollar/yen will go under 100 yen, we could see some range-bound trading around 110 yen for while."
The dollar has rebounded around five percent from a four-year low of 103.40 yen marked in late March, partly due to strong US jobs data that raised speculation the Federal Reserve could soon move to lift its funds rate from a 46-year low of one percent.
To help judge when the Fed may make its move, the market will look to a series of US data this week, particularly gross domestic product figures for the January-March first quarter due on Thursday.
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