Dollar approaches recent peaks

The dollar rose closer to a recent 17-month peak against the yen and three-month peaks versus the euro on Friday ahead of US consumer inflation data that could cement expectations for further interest rate rises.
But it stopped short of renewing this week's multi-month highs against major currencies due to rising risk aversion, stemming from falling stock prices and contagion fears after troubles at major US commodities and futures brokerage Refco.
Investors are focusing on US consumer price data at 1230 GMT to see if that reinforces the idea the Federal Reserve would raise interest rates further into next year, especially after the recent hawkish rhetoric from Fed officials.
"People still take inflation concerns as a piece of good news for the dollar because of implications for the Fed funds rate. Headline inflation can surprise on the upside today and yields can go up, which would be positive for the dollar," said Adarsh Sinha, currency strategist at Barclays Capital.
"Risk aversion is coming from the fact that three major central banks (in the US, eurozone and Japan) are sounding hawkish and that's weighing on the equity market and risky assets including commodity currencies. We also had a Refco incident."
By 1130 GMT the dollar has erased early losses to stand 0.3 percent higher on the day at $1.1985 per euro after hitting a three-month peak of $1.1899 last week.
Against the dollar it was up 0.3 percent at 114.86 yen, close to Thursday's 17-month peak of 115.09.
Analysts warned however that inflation expectations could also deal a blow to the dollar as they have led to a sell-off in the bond markets and taken some shine off US assets.
Refco Inc, struggling to survive after its former chief executive was accused of hiding bad debts to dupe investors, said on Thursday a key unit no longer had enough cash to operate. This fanned fears of possible bankruptcy and added to the already rising risk aversion.
"We are all talking about Refco and things are jittery," a treasury manager at a UK bank.
Economists polled by Reuters, on average, forecast a 0.9 percent rise in the US September CPI compared with a 0.5 percent increase in August.
Retail sales data for September are also due at 1230 GMT while September industrial production and the University of Michigan preliminary October sentiment will be also released.
"Strong US data today - CPI, retail sales and consumer confidence - are likely to reinforce the positive shifts in short and long term yield differentials currently supporting the dollar," said HBOS Treasury Services said in a note to clients.