Dollar soars versus basket of currencies in London

The dollar rose against a basket of currencies on Friday and was on course to push upward towards a two-month high if US economic data including inflation, industrial production and consumer sentiment was stronger than expected. Analysts said comments from top Federal Reserve official and arch hawk Jeffrey Lacker saying US rates would need to rise sometime next year, well ahead of Fed's pledge of ultra-low rates until 2014, was also shoring up sentiment for the dollar.
US Treasury yields extended a eight-session rise, lending solid support to the US dollar, as upbeat US data and a less than dovish monetary stance from the Fed continued to drive investors to cut bearish positions in the greenback. The dollar index, which measures its value against a basket of major currencies, stood at 80.392, up 0.3 percent and not far from a two-month high of 80.738 hit on Thursday.
Friday will see the release of US inflation and industrial output figures and a University of Michigan sentiment survey and strong readings could help push it higher. "We expect the dollar index to continue rising as funds move money into the US and as 10-year Treasury yields head higher," said Geoffrey Yu, currency strategist at UBS. "Higher yields will have a much bigger impact on the dollar/yen."
The dollar was up 0.3 percent at 83.76 yen, not far from an 11-month peak of 84.19 hit on Thursday as the yen continued to struggle in the wake of surprise monetary easing in Japan last month. The greenback was on course for its biggest weekly gains in four. The dollar has gained nearly 9 percent against the yen so far this year as the spread between the two-year US Treasury yield and its Japanese counterpart, which has a strong correlation with the currency pair, remained elevated at levels not seen since the middle of 2011, Reuters data showed.
The dollar's rise also saw the euro shed ground. The euro fell 0.2 percent to $1.3060 having dropped to a one-month low of $1.3004 on Thursday with steady buying from long term investors seen around $1.3050. Below $1.30, chart support lies at the February 16 trough of $1.2973.
"Many still expect euro/dollar to go lower on stronger US data, but few are ready to put on new short positions just yet," said Niels Christensen, currency strategist at Nordea in Copenhagen. Commodity-linked currencies also came off their recent lows against the dollar, with the Australian dollar flat on the day at $1.0534, comfortably above a one-month low of $1.0422 plumbed on Thursday. While higher-yielding currencies have fallen against the US dollar in the past few sessions as investors repriced rate expectations in the US, they have made strong gains against the Japanese yen.