The currency may climb from a 15-month low on speculation a stronger rupee will help temper import prices after crude oil advanced to a record on June 30. The rally in the commodity, which has almost doubled in the past 12 months, pushed inflation to a 13-year high and widened the trade deficit to a record. The rupee's 9 percent decline this year has also prompted overseas investors to dump local equities.

``It is only the central bank that can bring respite to the rupee,'' said V. Kumar, chief currency trader at state-owned State Bank of Travancore in Mumbai. ``The rupee will rebound on speculation it will have support from the central bank.''

The rupee was little changed at 43.3225 a dollar as of 10:30 a.m. in Mumbai, according to data compiled by Bloomberg.

The yen climbed by the most in almost a month against the euro after Moody's said Japanese banks have avoided the worst of the credit crisis. The currency also advanced as a decline in European and Asian stocks reduced demand for higher-yielding assets funded in Japan. The euro gained to the highest level in three weeks against the dollar as a European Union report showed inflation in the region was higher than expected in June.

The upgrade has given a bullish tone to the yen,'' said Antje Praefcke, a Frankfurt-based currency strategist at Commerzbank AG, Germany's second-biggest lender. ``The yen's gaining on increased risk aversion.'' The Japanese currency may rise to 158 per euro and 104 to the dollar in the third quarter, Praefcke said.

The yen advanced as much as 0.9 percent, the most since June 2, and was at 166.30 against the euro by 11:22 a.m. in London, from 167.58 late in New York on June 27 and 157.40 on March 31. Against the dollar, it was at 105.14, from 106.13 at the end of last week and 99.69 last quarter. The dollar slipped to as low as $1.5836 per euro, the weakest since June 9, and was at $1.5809 from $1.5794.

The 15-nation euro bought $1.5775 in late New York trading, compared with $1.5760 Thursday. The British pound climbed to $1.9930 from $1.9877, while the dollar slipped to 106.26 Japanese yen from 106.66 yen.

Light, sweet crude for August delivery climbed as high as $142.99 a barrel on the New York Mercantile Exchange Friday before pulling back sharply to settle up 57 cents at a record $140.21.

Meanwhile, the Commerce Department reported that disposable incomes the amount left after paying taxes had the greatest surge since 1975, reflecting $48.1 billion in economic stimulus rebate payments made last month. The surge in incomes helped boost consumer spending by 0.8 percent, the biggest gain since last November.

Gold futures for August delivery jumped 27.40 dollar to 907.70 dollar an ounce on the New York Mercantile Exchange.

The rally in US bolstered the trading sentiments in bullion in India, the biggest importer of the precious metal, as well with prices surging by Rs 300 to Rs 12,800 per 10 gram in Delhi in late trading today.

The Federal Reserve yesterday kept its benchmark interest rate unchanged at two per cent, even as policy makers acknowledged heightening inflationary expectations.

The metal had reached an all-time high of 1,033.90 dollar in March as crude oil and other commodities surged and dollar fell to a record low against the euro.

Oil, gold and copper gained as a weaker dollar increased demand for metals as a hedge against inflation. The US currency dropped after the Federal Reserve gave no indication of higher interest rates yesterday.

Japan's currency slid for a third day as ECB President Jean- Claude Trichet said on CNN there may be a small increase'' in rates, while the Bank of Japan will likely keep borrowing costs on hold. The dollar traded near the weakest level in more than two weeks against the European common currency as investors raised bets the Federal Reserve will hold off lifting rates.

The yen is going to continue to fall because the Bank of Japan has made it clear it isn't going to raise rates anytime soon,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp.

The yen fell to 169.46 per euro, the weakest since the European currency's 1999 debut, before trading at 169.22 as of 11:28 a.m. in London, from 168.90 yesterday. Japan's currency was at 107.70 versus the dollar, from 107.80. The dollar was at $1.5710 per euro after dropping yesterday to $1.5686, the lowest level since June 9.

Moody's (nyse: MCO - news - people ) also downgraded the government's local currency bond rating to 'Ba1' from 'Baa3 ' with a negative outlook.

The negative rating action was primarily motivated by the country's soaring consumer price inflation, which exceeded 20 percent in May, Moody's said.

This was the highest level in Egypt for almost 20 years and considerably higher than the 6-7 percent inflation rate expected by Moody's for Ba-rated countries in 2008.

The country displays a rather high degree of social vulnerability given its relatively low income per capita and higher poverty rate. This increases the political risks of inflation, particularly given the very high rate of food price inflation, Moody's said.

Moreover, Egypt is more fiscally constrained than similarly rated countries, thereby reducing the country's room for manoeuvre in terms of increasing fiscal expenditure in order to offset the pernicious social effects of inflation.

Egypt has the widest fiscal deficit and the highest public debt burden in relation to government revenues of any Ba-rated country. More than half of the Egyptian government's total expenditure is accounted for by subsidies and wages, which typically experience upward pressure in an inflationary environment, Moody's noted.

The currencies climbed to the highest in more than a week as traders pared bets the Fed will increase its 2 percent benchmark rate next week after a U.S. manufacturing report signaled yesterday the economy is weakening. The UBS Bloomberg Constant Maturity Commodity Index was set for a third weekly advance, supporting the outlook for the South Pacific economies.

``We retain our call for the Australian dollar to reach parity within three or four months,'' said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. ``We expect the Fed to stay on hold so relatively the Australian economy looks strong and this should guide the Aussie higher.''

The Australian dollar rose to 95.18 U.S. cents at 4:45 p.m. in Sydney from 94.73 cents late in Asia yesterday and 93.91 cents in New York on June 13. It earlier reached 95.20 cents, the most since June 10. The currency strengthened to 102.71 yen from 102.07 yen yesterday and 101.57 yen a week ago.

The U.S. currency also traded near a one-week low versus the euro on speculation a Federal Reserve report today will show a contraction in U.S. manufacturing, encouraging policy makers to delay increasing interest rates. The Swiss franc retreated from its highest since 1991 against the yen after the central bank left interest rates unchanged at a six-year high today.

There's increased volatility in asset markets, putting some pressure back on the dollar against low-yielding currencies,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA who predicts the U.S. currency will rise to $1.50 a euro by the end of the third quarter.

The dollar slid to 107.51 yen as of 9:16 a.m. in London, from 107.88 late yesterday in New York, and traded earlier at 107.43, the lowest level since June 12. It was little changed at $1.5528 per euro after reaching $1.5587 earlier, the lowest level since June 11. The euro fell to 166.95 yen after touching 168.04 yesterday, the highest since July 23.

The yuan will extend its advance through December, taking gains since the peg was scrapped almost three years ago to 24 percent, according to a Bloomberg News survey of analysts and economists, as the nation seeks to curb inflation. Vice Premier Wang Qishan said yesterday the government is pushing ahead with currency reform after making ``substantial'' progress in narrowing the trade gap with the U.S.

The accelerating move in the spot market is a welcome development,'' said Emmanuel Ng, a currency strategist with Oversea-Chinese Banking Corp. in Singapore.Keeping imported inflation at bay remains important.''

China's currency climbed 0.14 percent to 6.8821 a dollar in Shanghai as of the 5:30 p.m. close of trade, a sixth day of gains and compared with 6.8915 yesterday, according to the China Foreign Exchange Trade System. It touched 6.8809, the strongest since the decade-old peg system was scrapped in July 2005.

The currency declined from a four-month high versus the yen as economists at Moody's Investors Service Inc. and ABN Amro Holding NV said the Fed won't be in a hurry to raise borrowing costs. The British pound fell against the euro and dollar after Bank of England Governor Mervyn King said the path to bringing inflation within the bank's target is ``uncertain.''

Current market expectations of rate increases have gone too far,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Pricing in of Fed rate hikes had been the main driver for the rising dollar for the last two weeks. It's now paring those gains.'' The U.S. currency may fall to $1.56 against the euro today, Fritsch forecast.

The dollar declined to $1.5498 per euro at 7:07 a.m. in New York, from $1.5477 yesterday. The U.S. currency fell to 108.15 yen, from 108.22 yesterday, when it rose to 108.58, the highest level since Feb. 14. The euro retreated from an 11-month high against the yen to 167.58, from 167.49 yesterday. It earlier fell to 167.84, the weakest level since July 23.

ZEW Report

The euro pared gains against the dollar after a report showed investor confidence in Germany fell to a more than 15- year low this month. The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 52.4, from 41.4 in May. Economists expected a decline to minus 42.5, according to the median of 37 forecasts in a Bloomberg News survey.