NEW YORK (AFX) -- The dollar rallied across the board Friday, posting its first weekly gain against the euro and yen in five, on expectations the interest-rate differential continued to benefit the dollar and as investors squared positions after the market's recent sharp move.
Bank of Japan Governor Toshihiko Fukui on Friday dampened expectations of a June rate hike and gave no indication of when rates might rise after the central bank kept interest rates unchanged at 0%. French Finance Minister Thierry Breton said Wednesday that European officials will do 'everything' to prevent the euro from rising further against the dollar.
Comments made by officials from the Federal Reserve, the European Central Bank, and the Bank of Japan 'over the last 48 hours are likely to contribute to a slight widening of interest rate differentials in favor of the dollar,' Marc Chandler, currency strategist at Brown Brothers Harriman, wrote in a note.
In late New York trading, the euro was at $1.2771, down from $1.2846 late Thursday. The dollar traded at 111.72 yen from 110.81 yen, after rising to 112.23 yen, the highest level since May 8. The British pound was at $1.8786, down from $1.8932. The dollar was at 1.216 Swiss francs, up from 1.2057 francs late Thursday.
On the week, the dollar advanced 1.2% against the euro and 1.5% against the yen.
A sharp correction in commodity prices also helped push the dollar higher, said Brian Dolan, head of currency research at Gain Capital.
'The dollar appears to have found a short-term bottom. The market is willing to take profit at these price levels,' said Joel Ward, manager of the Joel Nathan ForexFund. But 'this hasn't stopped the 'buy on the dip' strategy the market has adopted, as Friday's bounce off of resistance shows.'
'Looking ahead, we may be in for further volatility in the short run, as the currency market struggles to find equilibrium in the face of growth, monetary policy, inflation, and structural uncertainties,' said currency analysts at research firm Action Economics.
'No preset idea on specific timing'
The yen weakened sharply after comments from Bank of Japan Governor Toshihiko Fukui were viewed as less hawkish than expected. Fukui reiterated that rates would be kept low after the central bank ended its zero-rate stance.
At a post-policy meeting press conference, Fukui said that 'we did not specifically discuss the end to zero interest rates at this policy meeting,' and that 'We have no preset idea on the specific timing for exiting zero interest rates.'
'We still think that rates won't start to go up until later in the summer or the early autumn,' said Steve Barrow, chief currency strategist at Bear Stearns.
Causing more of a stir on Friday were comments by Chief Cabinet Secretary Shinzo Abe, who called on the BOJ to refrain from a policy tightening.
'We want them to work together with the government to make sure we depart from deflation,' Abe said. 'We want them to support the economy sufficiently from the monetary policy side by keeping rates zero.'
The yen saw an early boost after Japan's first-quarter gross domestic product came in at 0.5%, above expectations for a 0.3% rise. Growth during the January-March period was spurred by healthy corporate spending and housing investment, according to data released by Japan's Cabinet office.
The Bank of Japan's monthly economic report also slightly helped the yen by stating that 'Japan's economy continues to recover steadily.' It also said the economy 'is expected to expand moderately.'
Snow: core inflation under control
Treasury Secretary John Snow said Friday he has complete confidence that the Federal Reserve will keep inflation under control.
'Overall growth is strong, and while it's true that headline inflation has picked up, core inflation remains in check,' Snow said in prepared remarks to the Bond Market Association. 'I have full confidence that Chairman [Ben] Bernanke and the Fed are committed to price stability and understand that this is their No. 1 priority.'
Earlier, in an interview on CNBC, Snow said that 'inflation is well contained and will be and inflationary expectations are well contained.'
Markets have been whipsawed in the past few months about what the Fed will do next. At times, investors seem to fear the Fed will stop too soon and let inflation get out of hand. At other times, they fear the Fed will go too far and choke off growth.
Kansas City Fed President Tom Hoenig said in an interview with the Wall Street Journal that the Fed is well aware of the risks of overshooting on interest rates. He said he expects core inflation to moderate despite the 0.3% increase in the core consumer price index for April reported earlier this week.
The Fed has increased interest rates at 16 consecutive meetings since June 2004, putting the federal funds rate currently at 5%. The Federal Open Market Committee, the Fed's policy-setting panel, next meets on June 28-29.
Strong dollar
Asked if the U.S. statements in favor of a strong dollar have become 'less forceful,' Snow replied: 'I don't think so. It is the policy. But we always say as well that currency values should be set in open, competitive currency markets to be in alignment with underlying demand and supply market forces.'
There's been speculation in the market recently that Washington has abandoned the strong dollar policy and will attempt to rely on currency depreciation to adjust imbalances in the global economy.
Snow on Friday also repeated Thursday's comments that China needed to do more to improve the yuan's flexibility and noted that Japan has signed on to the G-7 statement favoring open and competitive currency markets.
Japan's yen, viewed as a proxy for the Chinese yuan, often strengthens when speculation about yuan appreciation rises.
'He's [Snow] politely reminding them not to try to influence the value of the yen,' said Gain Capital's Dolan. This story was supplied by MarketWatch. For further information see www.marketwatch.com.