Dollar climbs in London

The dollar hit a one-month high against the yen and pulled further away from a record low versus the euro on Friday after Citigroup surprised investors with earnings that were not as bleak as many had been expecting. This extended the euro's earlier slide, helping push the single currency down more than a full cent against the dollar and well away from a record high near $1.60.
Citigroup Inc, the largest US bank, posted a quarterly loss of $5.1 billion, adding to losses in the previous quarter, and pre-tax write-downs of $6.0 billion. The figures showed financial institutions are continuing to suffer from the credit crunch, but Citi's writedowns were below some market expectations of up to $22 billion.
"Generally speaking, we are now seeing results coming in broadly in line with ... downward revisions and in some cases there have been some positive surprises," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
Citi's announcement drove the dollar 0.8 percent higher to 103.40 yen, its strongest level since mid-March. The dollar index was trading at 71.814. The euro fell more than a full cent against the dollar to trade more than 0.3 percent down on the day at $1.5840 by 1200 GMT, well away from a record peak of $1.5983 hit earlier in the week according to Reuters data.
The euro was also stung by a sharp climb in sterling on expectations of an imminent UK plan to aid the struggling mortgage market. Hope that the plan may limit the extent of UK interest rate cuts pushed euro/sterling down more than 0.7 percent to 79.21 pence, away from this week's record high at 80.98 pence. Sterling also rose 0.4 percent to $1.9993, a two-week high.
The euro has jumped nearly 9 percent to the dollar so far this year on the view that European interest rates will stay put until later this year, while the US Federal Reserve is seen as cutting rates further from the current 2.25 percent.
This would help to keep euro zone rates significantly higher than US ones, keeping the euro's yield appeal intact. Still, given the euro's ferocious gains in the past few months - the euro sailed through $1.50 only two months ago - analysts said the market was taking a breather ahead of $1.60.
"The move from $1.50 to $1.59 has been almost unrelenting so a consolidation is warranted in the short term," said Stephen Koukoulas, global strategist at TD Securities. But he added that a push through $1.60 was only a matter of time, a view shared by many in the market.
Market participants said that euro selling would likely be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4 percent at least through autumn.
The inflation argument was bolstered by figures showing German producer prices in March increased 0.7 percent month-on-month and 4.2 percent for the year, above expectations. Earlier this week, euro zone inflation hit a record high. "The main driver is interest rate differentials and it looks as though the ECB won't cut in the first half of the year," said Kikuko Takeda, senior currency economist at BTM-UFJ.
Analysts said that while US bank earnings this quarter have not been as dreary as some had been expecting, figures showed that the credit crisis is far from over, which many believed would keep the US currency under selling pressure.