(Recasts with reaction to US data, updates prices, adds
comment, changes byline, changes dateline, previous LONDON).
NEW YORK, May 7 (Reuters) - The dollar gained broadly on
Wednesday, supported by hawkish comments from a Federal Reserve
official that helped cement views that the U.S. central bank's
cycle of aggressive interest rate cuts may be nearing an end.
Kansas City Fed President Thomas Hoenig late on Tuesday
said that rates will need to be raised in a timely way as the
central bank grapples with a serious threat of inflation,
prodding the euro towards a five-week low versus the dollar.
[].
The euro also fell on reports showing euro area retail
sales were much weaker than expected, falling in monthly as
well as annual terms [], while German
manufacturing orders unexpectedly fell by 0.6 percent in March
-- underlining concerns about the slowing economy.
"Kansas City Fed President Hoenig, who is not on the FOMC
this year, warned that inflation is 'troublesome' and too
high," said Benedikt Germanier, senior currency stategist at
UBS in Stamford, Connecticut. "He suggested that when the Fed
is ready to raise rates, it may do so relatively quickly."
The euro traded 0.7 percent lower on the day at $1.5417
<EUR=>, off around 3.5 percent from the record peak struck on
April 22.
The dollar rose 0.7 percent to 105.41 yen <JPY=>. Against a
basket of currencies the dollar gained 0.6 percent to
73.474<.DXY>.
A run of poor economic data has pressured the euro in
recent weeks after it hit a record high above $1.60, peeling
away perceptions that the euro area was insulated from the U.S.
downturn.
French trade data added to the bearish picture; the euro
zone's second biggest economy reported a record trade deficit
for March.
Still, the European Central Bank is expected to hold
interest rates steady on Thursday at 4 percent, leaving the
focus on the post-decision briefing by ECB president Jean
Claude Trichet, who is expected to maintain a hawkish line on
inflation.
"The euro zone retail sales were particularly
disappointing, it does suggest that European consumers are
slowing down. All the data suggest the outlook is deteriorating
for Europe and that's consistent with downward pressure on the
euro," said Teis Knuthsen, currency strategist at Danske
Markets in Copenhagen.
DOLLAR STRENGTH
Also boosting the dollar were comments from U.S. Treasury
Secretary Henry Paulson, who told the Wall Street Journal in an
interview that "the worst is likely to be behind us" from the
crisis spawned by surging defaults on U.S. home mortgages. For
more details see []
But some analysts said that investors may be getting too
optimistic about the dollar's outlook as a rate rise by the Fed
was unlikely to help the U.S. economy, given that inflation
pressures have been prompted by high oil prices, rather than
consumer demand.
"Interest rates at their currently low level are going to
be necessary for some time, irrespective of inflation pressures
to make sure that a recession or even a depression is avoided
in the United States over the next 12-18 months," said Adam
Myers, market strategist at Credit Suisse in London.
The inflationary pressures reflected in oil continued, with
U.S. crude <CLc1> sitting at $121.75 a barrel compared with
Tuesday's record high at $122.73.
Further clues on the outlook for the problematic U.S. homes
sector are expected later with the release of pending home
sales data for March at 10 a.m. (1400 GMT).
A report showing U.S. businesses cut back on worker hours
during the first three months of this year as the economy
slowed, driving up productivity to a higher-than-expected 2.2
percent annual pace, had little impact on foreign exchange
trading.
(Additional reporting by Veronica Brown in London)
(Reporting by Nick Olivari; Editing by Theodore d'Afflisio)
