Dollar powers to two-week high

The dollar powered to a two-week high against the euro, Swiss franc and sterling on Thursday, as investors bet that any damage to the US economy from Hurricane Katrina would be short-lived.
Surveys of the US manufacturing sector due later in the session will capture Katrina's economic impact and along with August consumer prices will offer clues to whether the Federal Reserve would raise US interest rates or take a break from its tightening cycle at its policy meeting on Tuesday.
"The market has already come to the conclusion that the medium-term impact of Katrina will be negligible if not net positive, therefore weak figures in the near term won't have any bearing," said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi.
The euro has come under pressure as uncertainty grew over the outcome of Germany's election on Sunday, raising the possibility of a grand coalition between conservatives and socialists that could stymie reforms.
The euro hit a two-week low against the dollar at $1.2198, before recovering slightly to $1.2234 by 1215 GMT. The single European currency also hit a three-week low against the yen at 134.78 yen.
The lead of Angela Merkel's pro-business conservative party over Chancellor Gerhard Schroeder's Social Democrats has narrowed from more than 20 percentage points in June to as little as 6.5 in one poll this week.
"The uncertainty about the German election just tends to put people off buying euro/dollar. You look at the price action over the past few days and it pretty much reflects that. Euro/dollar has been unable to bounce and that has weighed," said Ian Gunner, head of foreign exchange research at Mellon Financial Corporation.
The dollar hit a two-week high against sterling at $1.8065, which fell almost one percent in the wake of weaker than expected retail sales data for August. Against the Swiss franc, it hit a two-week high at 1.2664 francs.
The franc weakened a touch after the Swiss National Bank decided to keep interest rates unchanged at 0.75 percent and said that it remains cautious given the current economic background.