The Greenback May Gain Ground as Fed Seems Likely to Raise Rates

The dollar may advance for a second week straight against the euro because the Federal Reserve is likely to look beyond the damage caused by Hurricane Katrina and jack up interest rates next week.

The dollar retraced about half of the 2 percent slide it suffered the week Katrina hit the Gulf of Mexico coast on Aug. 29. The hurricane, which may cost U.S. insurers a record $60 billion, pushed oil prices to an all-time high, prompted some economists to lower forecasts for economic growth, and raised speculation the central bank would hold off after raising rates in ten different meetings.

The dollar rose 1 percent against the euro last week to $1.2409, according to currency- dealing system EBS. The U.S. currency weakened 0.1 percent to 109.68 yen.

Interest-rate futures suggest traders are again betting the Fed will maintain its quarter-point per meeting pace of rate increases on September 20. The Fed´s benchmark interest rate is now 3.5 percent, up from 1 percent in June last year. The odds of a move on September 20 are more than 90 percent, up from less than 70 percent a week ago, according to the September federal funds futures contract.

The dollar is up 9.2 percent against Europe´s common currency this year as the U.S. economy expanded at more than twice the pace of Europe´s and higher rates make investment in dollar-denominated areas more attractive to foreigners.