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Dollar rallies on US interest rate hike talk

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The US dollar rallied broadly in Asia on Wednesday as a string of US economic data and bullish commentary from two Federal Reserve policymakers spurred talk of a US interest rate hike.

[TOKYO] The US dollar rallied broadly in Asia on Wednesday as a string of US economic data and bullish commentary from two Federal Reserve policymakers spurred talk of a US interest rate hike.

The greenback surged against emerging market currencies as investors ran for cover after overnight news that US industrial production, consumer prices and housing starts all rose in April.

The US central bank earlier this year said it would not raise rates again - after December's first hike in almost a decade - unless the world's top economy was showing signs of being in good health.

The better-than-expected data led to speculation the US central bank could lift borrowing costs as early as next month, jolting investor confidence.

On Wednesday, the US unit was up against higher-yielding emerging currencies, rising 0.7 per cent against the South Korean won, while also booking healthy gains against the Malaysian ringgit, Singapore dollar and Thai baht. It also rose against the Philippine peso and Taiwan's dollar.

The euro fell sharply to US$1.1289 and 123.13 yen from US$1.1313 and 123.46 yen on Tuesday in New York.

Talk of a US rate rise also lifted the dollar against the yen to 109.21 yen from 109.13 yen in US trade.

The two Fed officials said in the US on Tuesday they could see two to three rate hikes this year, starting as early as June.

"Fed officials have come out all sounding hawkish and that tone is likely to continue," Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ, told Bloomberg News.

"The (Fed policy meeting) minutes aren't likely to be too dovish." San Francisco Fed chief John Williams said he was confident about the economy and that the pace of growth made two to three increases in 2016 appropriate, beginning as soon as the Fed's June 14-15 policy meeting.

More cautious about the June meeting, Atlanta Fed President Dennis Lockhart said it was too early to draw a firm conclusion about second-quarter economic data.

Markets are now eyeing a meeting between finance ministers and central bankers from the Group of Seven countries starting later this week in northern Japan for fresh trading cues.

US President Barack Obama and other G7 leaders are attending a separate summit in Japan next week.

AFP