NEW YORK -- The dollar rallied against most major currencies, hitting a two-month high against the German mark amid signs that inflation concerns could prompt the Federal Reserve to raise interest rates soon.
The dollar took off after the Wall Street Journal reported that Fed officials voted to lean toward raising short-term interest rates when they met last week. The Fed doesn't release the minutes of its regular Federal Open Market Committee meetings until six weeks after they take place.
"Everybody is talking about Fed tightening, and that's the kind of thing that helps the dollar," said Earl Johnson, foreign exchange adviserat Harris Trust & Savings Bank in Chicago. Higher interest rates make dollar-denominated investments more attractive, bolstering demand for the currency.
The dollar rose almost a pfennig from late Friday, finishing at 1.6355 marks, after rising as high as 1.6435 marks in European trading. The dollar was little changed at 110.60 yen. Gold prices slumped, meantime, with gold for delivery in June falling $3.70, to $374.20 an ounce, on the Commodity Exchange.
The vote by the Federal Open Market Committee doesn't mean that rates are heading higher immediately, but it gives Fed Chairman Alan Greenspan the authority to raise the key federal funds rate without a vote by the Fed policy committee. That rate stands at 3 percent.