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Forex outlook:
The dollar rose to a four-month high against the yen as accelerating U.S. job growth and stronger manufacturing added to signs the economy is gaining momentum. The U.S. currency closed this week near a seven-week high versus the Euro as reports encouraged traders to reduce bets on a cut in borrowing costs by the Federal Reserve. The central bank said in minutes of its May 9 meeting released this week that it still expects a pickup in the economy this year and views inflation as its main concern.
"Despite the weak GDP data in the first quarter, the latest reports have been better than expected, boosting growth expectations and the dollar," said Gregory Salvaggio, a vice president for trading at Tempus Consulting in Washington. "On top of that, there have been signs of a pickup in inflation and we all know that inflation is the Fed's main concern. That means no rate cuts in the near future."
The yen has weakened against all 16 major currencies tracked by Bloomberg so far this year, falling 4.4 percent against the Euro and 2.5 percent versus the dollar. Japan's benchmark interest rate, at 0.5 percent, is the lowest among major economies. It compares with the Federal Reserve's 5.25 percent target and the European Central Bank's 3.75 percent key rate.
The leaders of the G-8 countries including the U.S., Japan Germany and the U.K. will meet June 6-8 for their annual summit in Germany. German Chancellor Angela Merkel will host fellow G-8 leaders including President George W. Bush, Russian President Vladimir Putin and the new French leader, Nicolas Sarkozy, for talks on issues ranging from climate change to development in Africa.
The weekly U.S. economic data -- led by the April international trade balance report and ISM's U.S. services survey -- are expected to offer little market impetus, traders say, and they expect currencies to trade within narrow ranges.
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