By Candice Zachariahs June 9 (Bloomberg) -- The dollar gained toward a four-year high against the euro on prospects a recovery in the U.S. economy will outpace that in Europe where sovereign debt concerns continue to weigh on growth. The euro weakened as economists surveyed by Bloomberg forecast the European Central Bank, which meets tomorrow, will leave its key interest rate at a record low until the second quarter of 2011. Federal Reserve Chairman Ben S. Bernanke testifies before a House Budget Committee today after saying June 7 he’ll raise interest rates before the economy returns to full employment. The yen rose against 15 of its 16 most-active peers as Asian stocks fell, spurring demand for safer assets. “The Fed will be tightening before the ECB with the U.S. economy recovering at a faster pace,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Both those things are dollar supportive.” The dollar gained to $1.1941 per euro as of 6:24 a.m. in Tokyo from $1.1973 in New York yesterday. It climbed to as high as $1.1877 per euro on June 7, the strongest since March 2006. The dollar bought 91.44 yen from 91.46. The yen rose to 109.17 per euro from 109.51 yesterday. It touched 108.08 per euro two days ago, the strongest since November 2001 Kansas City Federal Reserve Bank President Thomas Hoenig said the U.S. is in a sustained recovery and the Fed should begin to normalize policy, with rates near zero “unsustainable.” The Fed’s benchmark interest rate has been in a range of zero to 0.25 percent since December 2008. Fed Funds Rate Hoenig, speaking in Kansas City, Missouri yesterday, repeated that the funds rate should be raised to 1 percent by the end of September. He has voted against all three central bank statements this year, saying in April that the Fed’s pledge to keep its main rate low for an “extended period” limits its “flexibility to begin raising rates modestly.” Futures trading on the CME Group exchange showed a 32 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its December meeting, down from 50 percent a month ago. Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted,” Shinohara said in remarks prepared for delivery in Singapore today. Little Confidence Global investors have little confidence in Europe’s efforts to contain its crisis or in ECB President Jean-Claude Trichet, with 73 percent calling a default by Greece likely. Only 23 percent say they expect the region’s almost $1 trillion rescue package to both keep the European monetary union together and prevent a debt default by a government, according to a quarterly poll of investors and analysts who are Bloomberg subscribers. More than 40 percent say Greece is likely to abandon the euro. The pound fell versus most of its major peers after Fitch Ratings said yesterday the U.K.’s fiscal challenge is “formidable.” Fitch suggested British Prime Minister David Cameron will need to speed up budget-deficit cuts to protect the U.K.’s top credit rating. Treasury estimates show government debt-interest costs reaching 70 billion pounds ($101 billion) in five years, up from 31 billion pounds in the last fiscal year. Fiscal Challenge “The scale of the United Kingdom’s fiscal challenge is formidable,” Fitch said in the first statement by a credit- rating firm on the U.K. since Cameron took office May 11. Sterling declined 0.3 percent to $1.4424 and 0.3 percent to 131.90 yen. The Australian dollar fell against 15 of its 16 most-traded counterparts as reports showed the nation’s consumer confidence declined for a third month and home-loan approvals fell. HSBC Plc dropped its forecast for the Aussie to reach parity by year-end, citing a “bumpy and volatile ride” ahead for the currency because of the risk China’s property bubble may deflate. The Aussie will trade at 85 cents by December, analysts including London-based David Bloom, global head of currency strategy, wrote in an e-mailed note. “Particularly when it comes to China there’s risks -- as we’ve seen historically -- of China over-tightening and the property market facing a very significant slowdown,” said Richard Yetsenga, a currency strategist at HSBC in Hong Kong. “That would pose some material downside risks for the Aussie.” The Australian dollar weakened 0.8 percent to 82.16 cents and has dropped 10 percent this quarter. --Editors: Rocky Swift, Nate Hosoda To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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