* Dollar rises, trades near highs versus euro, yen
* Weak euro zone inflation data adds to rate cut prospects
* US Fed's Plosser reiterates need to slow asset purchases
* U.S. data awaited later; Aussie hits 11-month low
By Jessica Mortimer
LONDON, May 16 The dollar was near a six-week
high against the euro and a 4-1/2 year peak against the yen on
Thursday on expectations of scaled back asset buying in the
United States and more monetary easing in the euro zone.
Falling prices in Germany and France highlighted the risk of
deflation in the euro zone as the region slips into recession,
whcih could increase the risk of more European Central Bank
interest rate cuts.
By contrast Federal Reserve policymaker Charles Plosser for
the U.S. central bank to start tapering asset purchases from
But analysts said the dollar could pare its gains if U.S.
inflation data and a business survey of the mid-Atlantic region
due at 1230 and 1400 GMT come in weak, especially after a string
of softer data on Wednesday.
Plosser is a known hawk but more Fed officials are due to
speak on Thursday and Friday, while Fed Chairman Ben Bernanke
speaks at the weekend.
"Data has highlighted weakness in the euro zone economy,
including in core countries, and this will leave the euro
vulnerable," said Ian Stannard, currency strategist at Morgan
At the same time a firmer dollar trend was "very much in
place", which could mean the euro drops towards the April 4 low
of $1.2740 perhaps as early as next week. "Even if Bernanke
dampens some of the pro-tapering enthusiasm it will only cause a
temporary setback for the dollar."
The euro was down 0.1 percent at $1.2870, staying
near a six-week low of $1.2843 hit on Wednesday when data showed
the euro zone contracted for a sixth consecutive quarter.
The dollar rose 0.1 percent against a basket of currencies
at 83.878, hovering near the 2012 peak of 84.10. Above this
would mark the dollar's highest in nearly three years.
"The only thing driving currencies at the moment is that we
are in an environment where stronger U.S. growth is positive for
the dollar via the Fed tapering argument," said Adam Cole,
global head of FX strategy at RBC.
Against the yen the dollar was up 0.2 percent at
102.51 yen, near a peak of 102.77 yen hit on Wednesday, its
strongest since late 2008.
Traders said investors were eager to buy dips in the dollar,
which was expected to gain further while the yen continued to
weaken following April's aggressive Japanese monetary easing.
Commodity currencies fell sharply, with the Australian
dollar falling 1 percent to an 11-month low of $0.9797.
The New Zealand dollar hit a six-month low of $0.8140.
RBC's Cole said when the dollar moved higher
commodity-linked currencies tended to be the hardest hit because
dollar strength often feeds through into commodity price