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NEW YORK: The US dollar strengthened on Wednesday against the euro and yen on speculation the Federal Reserve would hike interest rates to curb inflationary pressures.
The euro was at 1.5693 dollars around 2100 GMT, down from 1.5781 dollars late Tuesday in New York.
The dollar rose to 107.86 yen from 107.25.
John Kicklighter, analyst at Forex Capital Markets, noted a turnaround from last week's "remarkably bearish" sentiment on the US economy and fears of a collapse of mortgage finance giants Freddie Mac and Fannie Mae.
With banks' earnings reports coming in better than expected, the outlook for the markets brightened, he said.
"So did forecasts for the eventual turn to rate hikes from the Fed," he added.
Underpinning the dollar was a sharp fall in oil prices - down four dollars a barrel in New York - that dampened inflation worries.
"A sustained move lower (in oil prices) would clearly pave the way for central banks globally to ease restrictive monetary stances (and) that would be favourable for the dollar," said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ in London.
Dealers said the euro also came under pressure after weaker-than-expected eurozone industrial orders data added to concerns the European economy is slowing sharply.
Eurozone industrial orders slumped 3.5 percent in May from April, compared with forecasts for a drop of 2.0 percent.
"May's sharp decline adds to a recent stream of worrying news on the manufacturing sector and, indeed, the eurozone economy overall," said economist Howard Archer at consultants Global Insight.
Bank of America economist Holger Schmieding said: "As old orders are worked off and new orders are no longer increasing, industrial output looks set to stagnate soon as well."
Dealers said comments from a senior US Federal Reserve official warning of the need to hike interest rates to tackle inflation also helped the dollar.
US interest rates at 2.0 percent compared with 4.25 percent in the eurozone have played in favor of the euro as investors generally prefer higher-yielding currencies.
Philadelphia Federal Reserve president Charles Plosser warned in a speech on Tuesday that a rise in US interest rates was unavoidable in the short term in the face of inflationary pressures.
While Plosser is seen as one of the most hawkish members of the Fed's rate-setting committee, his remarks rekindled speculation about possible US rate hikes that could boost the dollar, dealers said.
Further support came from US Treasury Secretary Henry Paulson, who reiterated Washington's preference for a strong dollar and his backing for troubled US mortgage finance giants Fannie Mae and Freddie Mac.
"The dollar has recovered sharply against nearly all major currencies with reassuring comments from Paulson and hawkish comments from Plosser cited as key factors that triggered the rebound," said Halpenny.
In late New York trade, the dollar stood at 1.0378 Swiss francs, up from 1.0302 late Tuesday.
The pound was at 1.9984 dollars, compared with 1.9912. - AFP/de
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