Euro hits two-month high versus dollar

The euro hit a fresh two-month high against the dollar on Wednesday, boosted by expectations the European Central Bank will raise interest rates next month and beyond.
The dollar also came under pressure after Kansas City Federal Reserve Bank President Thomas Hoenig said late on Tuesday that the central bank is very close to where it needs to be on policy after having raised rates 15 straight times to 4.75 percent.
The contrasting outlooks for the Fed to soon end its long credit tightening campaign while the ECB may repeatedly raise rates in the months ahead have taken a toll on the US currency.
"Hoenig's comments triggered some dollar selling," said General Kawabe, a senior trader at Chuo Mitsui Trust and Banking. "The market reacted to his comment that the Fed funds rate may be at the upper end of the central bank's neutral range."
Richmond Fed chief Jeffrey Lacker said on Tuesday that the US economy is close to a balanced growth path, suggesting the central bank's rate tightening campaign is nearly over.
The single currency jumped 1 percent against the dollar on Tuesday after a news report that the ECB will boost interest rates to 2.75 percent in May, while a separate report from a US think tank said the Fed would soon stop raising rates.
The market widely expects the ECB to keep overnight rates unchanged at its policy meeting on Thursday but lift them in May and possibly take them as high as 3.5 percent by year-end.
Traders said the market was eyeing comments that ECB chief Jean-Claude Trichet is slated to make after Thursday's meeting for a clear signal of how much credit tightening is in store.
The euro was at $1.2275, just off the two-month peak around $1.2285 hit earlier.
The euro, after breaching strong resistance of $1.2200, has momentum to test $1.2300, said a trader at a Japanese bank.
Against the Japanese currency, the euro fell around 0.4 percent to 143.45 yen. That was off the previous day's high of 144.13 yen marked on electronic trading platform EBS, the strongest since the single European currency was launched in 1999.
Traders said selling by Japanese exporters helped to nudge the euro lower against the yen. The dollar shed about 0.5 percent to 116.85 yen. The dollar would likely find support from Japanese investors.