By Ben Levisohn and Bo Nielsen Dec. 15 (Bloomberg) -- The dollar climbed to the strongest level against the euro in more than two months after reports showed accelerating inflation and a gain in U.S. output as the Federal Reserve started its two-day meeting. The U.S. currency climbed as futures indicated today a 53 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by June, compared with 44 percent odds a month ago. Australia’s dollar fell as the nation’s Reserve Bank said its decision to raise borrowing costs two weeks ago for a third straight month gave policy makers increased “flexibility” at future meetings. “The data was positive for the dollar,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “It’s much safer to be short the yen, not the dollar.” A short is a bet a currency will decline. The dollar advanced 0.7 percent to $1.4551 per euro at 9:19 a.m. in New York, from $1.4656 yesterday, and appreciated to $1.4522, the strongest level since Oct. 2. The dollar rose 1.1 percent to 89.58 yen, from 88.62. The yen was at 130.36 per euro, compared with 129.90. Australia’s currency dropped 1 percent to 90.72 U.S. cents, from 91.67 cents. The U.S. currency’s gain versus the euro accelerated after it broke through $1.4630, a level where investors had placed stop-loss orders to sell the European currency, traders said. I will meet resistance at about $1.4481, the euro’s Oct. 2 low, where traders will seek to avoid the triggering of more stop- loss orders, said John Hydeskov, a foreign-exchange analyst at Danske Bank A/S in Copenhagen. ‘Buy the Dollar’ “I’m hearing a lot of interest to buy the dollar,” said Stephen Bellamy, a senior foreign-exchange trader at Saxo Bank A/S in Copenhagen. “But I’m skeptical about the chances of breaking any major levels to the downside going into year-end.” Prices paid to producers rose 1.8 percent last month after a 0.3 percent increase in October, the Labor Department reported. The median forecast of 77 economists in a separate Bloomberg survey was for a 0.8 percent increase. U.S. industrial output rose 0.8 percent in November following no change in the previous month, the Fed reported today. The median forecast of 78 economists in a Bloomberg survey was for a 0.5 percent gain. The Federal Open Market Committee will announce its decision on interest rates tomorrow. Fed funds futures on the Chicago Board of Trade show a 100 percent chance the central bank will refrain from raising borrowing costs at that time. Outlook for Fed “They will need to see a lot more, better numbers consistently, not just for one or two months, before they would start to genuinely be talking more hawkish,” David Mann, senior strategist at Standard Chartered Plc in Hong Kong, said in an interview with Bloomberg Television. “In the absence of that, I think the markets may be disappointed if they’re looking for hints of hikes coming soon.” Fed officials pledged at their Nov. 4 meeting to keep rates at almost zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. The yield premium investors demand to hold a German two- year government note instead of a comparable-maturity U.S. security fell to 39 basis points today, or 0.39 percentage point, from 51 points a week ago. The Australian dollar declined as a Credit Suisse Group AG index showed traders lowered the odds of an increase in the 3.75 percent target lending rate at the central bank’s meeting on Feb. 2 to 66 percent, from 80 percent yesterday. Aussie Minutes Minutes of the Reserve Bank of Australia’s December meeting released today “suggest that they could consider a pause at the following meeting,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia. “The bigger risk for the Aussie is that the Fed’s statement is slightly more upbeat and therefore the U.S. dollar strengthens as market participants bring forward the timing of a rate rise in the U.S.” The Norwegian krone and the Swedish krona fell against the dollar as investors speculated the central banks of both Scandinavian nations will keep interest rates unchanged at meetings tomorrow. Sweden’s Riksbank will hold the key rate at 0.25 percent, while Norges Bank will maintain a rate of 1.5 percent, separate Bloomberg surveys showed. The krone slid 0.9 percent to 5.8280 per dollar. The krona declined 1.3 percent to 7.1995. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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