NEW YORK (CNN/Money) - The dollar hit a two-month high against the euro Tuesday after a Federal Reserve member forecast strong economic growth and rising interest rates for 2005.
The euro bought $1.3028, down from $1.3090 on the session. The dollar pushed the euro below $1.30 for the first time since November in early European trade.
The dollar bought ¥102.30, up from ¥102.06 late Monday. Earlier Tuesday, the dollar rose 0.7 percent against the yen at ¥102.80, more than a yen above five-year lows hit Monday.
Higher interest rates may boost the greenback by making returns on dollar-denominated deposits more attractive to global investors.
Earlier Tuesday, Fed Bank of Philadelphia President Anthony Santomero said the U.S. economy should see GDP growth of 3.5 to 4 percent in 2005 and that interest rate hikes should continue at their measured pace until the cost of borrowing is equal to the rate of inflation.
Also helping the greenback was a report showing the U.S. attracted more than enough foreign investment in November to cover that month's record $60.3 billion trade deficit.
The two reports left traders wondering if the dollar's rally against the euro over the last few days is really more than just a blip.
"There's a chance the euro has seen its high for the cycle and Asian currencies have further to adjust," Bob Sinche, head of global currency strategy at Bank of America in New York, told Reuters.
Asian currencies have risen recently as speculation builds that China will be pressured at the G7 meeting later this month to free the yuan from its dollar peg and let it climb.
Investors will also keep a close watch on consumer price index data for December, due Wednesday, as well as the Fed's Beige book, an anecdotal survey where the bank talks to business people, academics and local government officials to get an on-the-ground view of the economy.
In Treasuries, Santomero's interest rate comments frightened traders from short-term debt and investors instead bought long-term in light trade.
The benchmark 10-year note gained 7/32 of a point to trade at 100-13/32, yielding 4.20, down from 4.22 late Friday. The market was closed Monday for the Martin Luther King, Jr. holiday.
The 30-year bond rose 23/32 of a point to 110-8/32 to yield 4.69, down from 4.73 late Friday. Bond prices and yields move in opposite directions.
The two-year note remained flat at 99-17/32, yielding 3.25 percent. The five-year was also flat at 99-18/32, yielding 3.72 percent.
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