European focus: USD gained to a 3-month high versus the yen.[E]

The dollar gained to the highest in almost three months against the yen
and lifted versus the euro on speculation increased violence in the
Middle East will stoke demand for assets denominated in the U.S. currency.
Israel stepped up bombing Beirut today in its biggest military campaign
against Lebanon since 1982.
The situation in the Middle East is worrying financial markets and USD
now plays as a safe-haven currency for us,'' said Simon Derrick, Bank
of New York. As long as this political uncertainty is roiling Middle
East situation the dollar will do well.''
The U.S. currency may be further boosted amid anticipation Fed Chairman
Ben S. Bernanke will tell Congress this week that inflation is
accelerating fast enough to urge further interest-rate lift.
EUR losses could be limited as EU inflation remains still above the ECB
2% target rate ceiling in June at 2.5%.
ECB President Jean-Claude Trichet on July 6 said the bank will exercise
strong vigilance" against inflation, signaling the bank may lift
borrowing costs next month. Investors believe ECB main lending rate will
raise at least to 3.25% by the end of the year.
A report tomorrow may signal investor confidence in the Germany dropped
to the lowest in more than a year in July, spurring concern that higher
borrowing costs are hurting growth.
We're looking for a drop to 35,'' said Lee Wai Tuck Forecast Singapore
Ltd. And it could be a slight negative for the euro.''