The dollar once again rose approaching the seven-month high reached on Wednesday on expectations that U.S. inflation report increases the chances of another hike in the US interest rate. Support was also generated by the report of the U.S. Treasury that stopped short of saying that China manipulated yuan to gain an unfair trade advantage in the second half of 2004. The Bank of England is projected to lower its key interest rate on a batch of disappointing economic data which contributed to the rise in the greenback against the sterling.

 

"There is a lot of momentum that is positive for the dollar at the moment," said Steven Saywell, chief currency strategist at Citigroup.

 

"The market is concentrating on dollar-positive news and ignoring dollar-bearish news."

 

The European Union's executive Commission Jose Manuel Durao Barroso addressed French voters calling on them to support the EU's new constitution in the upcoming referendum and citing the danger of negative economic consequences in case the constitution is rejected.

 

The data that helped bolster the dollar include a positive U.S. jobs report and a lower-than-expected current account gap. Now, in the wake of the report that suggests inflation is picking up, analysts are waiting for signs from the Fed that it is ready to adopt a more aggressive stance.

 

"If core inflation measures continue to show a pick-up, we believe that a more aggressive tightening policy may be warranted ... a more aggressive Fed should ultimately bode well for the dollar," Morgan Stanley strategists said in a research note.