Dollar rallies in London

The dollar rallied to two-month highs against an index of currencies on Friday, boosted by expectations for more US rate hikes and by inflows of cash from investors keen to get out of falling emerging markets.
The yen fell to a two-month low against the US currency for the second day in a row as investors become less sure whether the Bank of Japan will raise interest rates from virtually zero as soon as next month.
The dollar was buoyed on Thursday by rumours that Fed officials, possibly including Chairman Ben Bernanke, had met with bond market participants on Wednesday.
That fanned speculation the Fed might raise rates by half a percentage point next week, although most traders were sceptical and stuck to forecasts for a quarter point rise to 5.25 percent.
Expectations of another rate hike in August have also risen, with US short-term rate futures on Thursday pricing in as much as a 90 percent chance of such a move on Thursday.
"There is a reassessment of Fed intentions ... People think the Fed may decide that it does not like feeling it is behind the curve on the inflation front and therefore will take a more aggressive stance in the months ahead," said Simon Derrick, head of currency research at Bank of New York.
By 1126 GMT the dollar rose to a two-month high against an index of currencies 86.70. It hit a two-month high against the Swiss franc at 1.2477 francs. The euro fell a quarter of a percent on the day to $1.2540 about 15 ticks away from a two-month low.
US durable goods orders for May are due at 1230 GMT. Orders are expected to rise 0.5 percent compared with a 4.4 percent drop in April. A strong reading is seen further supporting Fed rate hike expectations.
The yen fell as low as 116.39 per dollar on increased uncertainty over the timing of the first BOJ rate hike.
"A July hike had been fully priced in. Now there are risks associated with that, that's why the yen is underperforming," said Steven Saywell, currency strategist at Citigroup.
Bank of Japan Governor Toshihiko Fukui is in trouble over a scandal over his investment years ago in an equity fund run by a financier indicted on Friday on suspicion of insider trading.
Although Prime Minister Junichiro Koizumi and ministers have strongly backed the BOJ chief the yen has come under pressure this week from persistent speculation that Fukui may resign and talk that this could delay the timing of BOJ rate hikes.
Elsewhere, the New Zealand dollar hit 11-week lows at US $0.6051, remaining under pressure after data on Thursday showed New Zealand's annual current account deficit ballooned to a wider-than-expected record level of NZ$14.54 billion - or 9.3 percent of GDP - in the first quarter. The Australian dollar also weakened to a two-month low against the US currency.