Citigroup profit boosts dollar but uncertainty stays

New York: The dollar rose against a basket of six major currencies on Friday, boosted by news Citigroup posted a smaller-than-expected loss in the second quarter, further calming fears about the health of the US financial sector.

The results from Citi, the largest US bank, add to positive earnings news from other banks such as Wells Fargo and JP Morgan Chase earlier this week.

As well as injecting fresh impetus into the dollar, Citi's results increased optimism in the stock market.

"Citi earnings have encouraged the market to take on more risk and given [the dollar] a lift," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto. They were "consistent with other bank earnings seen earlier this week which has turned sentiment around on the dollar a little bit."

The dollar also benefited from sharp falls in sterling after the Financial Times reported the UK Treasury is working on plans to change its fiscal rules.

This could effectively give it more leeway to increase borrowing as a way of mitigating the effects of an anticipated economic slowdown.

Early in New York, the dollar index, which tracks its performance against a basket of six major currencies, was up 0.3 per cent at 72.250, though still close to the record low of 70.698 hit in March after the Federal Reserve coordinated JP Morgan Chase's takeover of Bear Stearns.

Sterling was down 0.3 per cent at $1.9950, even though the UK Treasury dismissed the FT report as "pure speculation." The euro fell 0.3 per cent to $1.5816, and the dollar was up 0.6 per cent against the yen at 106.85 yen.

The euro was capped by European Central Bank President Jean-Claude Trichet's comments published yesterday that euro zone growth is likely to be weak in the second and third quarter before staging a recovery.

Risks to growth were on the downside, Trichet said in a joint interview with four European newspapers.

For the week, the euro has lost 0.8 per cent against the dollar, while the dollar rose 0.7 per cent against the yen.