Dollar Strengthens Against Yen, Euro

Currency traders who have been bearish on the U.S. dollar continued to back off Thursday, on growing fears that major foreign governments won’t accept more dollar weakness.

The greenback jumped to its highest level against the yen in almost three months. The euro fell to its lowest level against the buck in nearly a month.

The dollar rallied as French Prime Minister Jean-Pierre Raffarin echoed German Chancellor Gerhard Schroeder’s call on Wednesday for the European Central Bank to ease credit.

Lower interest rates could make euro-denominated bonds less appealing, stemming the flow of capital into euros.

“Suddenly, comments from European officials expressing concern about the level and rate of change in the euro seem to have had an impact,” said John Rothfield, a currency market strategist at Bank of America in San Francisco.

The euro fell to $1.244 in New York, down from $1.25 Wednesday. Its recent peak was $1.284 on Feb. 17.

The dollar ended at 109.63 yen, up from 109.02 Wednesday. The dollar hit a three-year low of 105.37 yen Feb. 12.

Raffarin, speaking to reporters in Paris, said he shared Schroeder’s opinion about the need for a cut in interest rates. Both men said the euro’s surge in the last year had hurt European exporters by raising prices of their goods abroad.

The European Central Bank’s key short-term rate is 2%, double the Federal Reserve’s benchmark rate of 1%.

An ECB spokesman declined to comment on the possibility of a rate cut. The next ECB meeting is scheduled for Thursday.

In Japan, Finance Minister Sadakazu Tanigaki said the government was ready to take “appropriate action” to prevent the yen’s two-year rally from quashing the economy’s revival.

Japan has been actively selling yen and buying dollars over the last year, in an attempt to corral the yen. Some traders said there were signs that the government would take advantage of the yen’s sudden weakness by trying to push it even lower.

But whether the dollar’s resurgence can last is uncertain. The Bush administration has favored a weaker buck to help U.S. exporters by making their products less expensive abroad.

And many analysts say the dollar is likely to remain under pressure because of long-term worries about the country’s record budget deficit.