American focus: dollar gains as probability of rate hike on June FOMC meeting strengthened [E]

On Tuesday the dollar became stronger against the euro, up from area of 13-month lows. The cause of demand for dollar is the growing probability of Fed rate increase on June 29. Analysts expect rate will be raised from current 5.0% to 5.25%. (Federal Funds 25 years диаграмма Federal Funds 50 years диаграмма). Analysts JPMorgan Chase Co. changed their forecast in favour of rate increase after Chairman of the Federal Reserve Ben Bernanke expressed fears about inflation in the country. From the beginning of this year the U.S. currency fell 8.8 % on a background of expectations of slowdown in monetary policy tightening while the ECB rate likely continue to grow. Yesterday Ben Bernanke said, that last rise in prices is "unwelcome", that assumes Central Bank may increase interest rates for the 17-th time. At the moment futures for rates of federal funds on 72% priced probability of June rates hike to 5.25%. Before Bernanke speech this probability was 48%. Today Kansas City governor Thomas Hoenig speaks on monetary policy.

Meanwhile, losses of euro can have temporary character after today’s report showed, that service PMI in Europe reached a 5-year high. It also says well for continuation of rate increase by the ECB. According to statistics, PMI gained in May to 58.7 (a biggest rise since September, 2000). Month earlier this index was 58.3 points. Service sector of Eurozone totals 1/3 of region economy which estimated in $10 trillion. Besides according to comments of ECB members, Nout Wellink and Axel Weber, rate increase of ECB on 50 points is possible if oil will stay around 70 per barrel and growing economy will continue to fuel the rise of consumer prices. Futures show that rates in region will reach 3.5% by December, 2006.

Wall Street on Tuesday suffers after comments of Federal Reserve Chairman Ben Bernanke showed concerns about inflation situation in the country. There Alcoa and Boeing shares became under the pressure among Dow components, however Coca Cola and Kimberly Clark shares increased. Shares of building sector were also under the pressure, subject to influence of interest rates: Home Construction index fell 3.4%, continuing 5% falling on Monday. Hewlett-Packard reconsidered the forecast about profit for the second quarter with increase for all financial year, however company’s stocks continued to decrease. IBM shares increased after company declared about intention to invest in India nearby $6 billion during 3 years. Shares of auto-giant General Motors fell after executive director of company Rick Wagoner declared to shareholders that the company will have problems with costs reduction on $1 billion in current year. Oil prices decrease around $1 dollar, but remain above $71.00 per barrel.