The US dollar rallied for a sixth straight day yesterday, its longest winning run since November, as interest rate differentials continued to move in favour of the US.

Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, became the latest to lend her voice to what is fast becoming a co-ordinated campaign by rate-setters to reassure the markets that the post-Greenspan Fed will be tough on inflation.

Ms Pianalto said the current inflation picture, if sustained, exceeded her "comfort level", echoing the comments of colleagues including Ben Bernanke, the relatively new chairman of the US central bank.

The market reacted by raising the probability of a 17th straight quarter-point rate rise on June 29, taking rates to 5.25 per cent, to 86 per cent.

"This is a continuation of what we saw last week," said Marc Chandler, head of global currency research at Brown Brothers Harriman. "Fed speakers have not disappointed us with their continued hawkishness and people are looking at something closer to $1.25 [ to the euro]."

The dollar rose 0.3 per cent to $1.2586 against the euro, a five-week high, 0.1 per cent to Y114.23 against the yen and 0.2 per cent to SFr1.2336 versus the Swiss franc.

The euro was generally weak, slipping a fraction to Y143.86 against the yen and SFr1.5532 versus the Swiss franc and 0.5 per cent to £0.6825 against sterling.

Some saw the euro being hurt by data on the positioning of short-term speculative traders, released late on Friday, which showed that net-long positions in the euro had risen to a record level. This increases the risk that the euro might weaken if and when some of these positions are squared.

Mr Chandler also ascribed euro weakness to the fact that the weekend's meeting of G8 finance ministers passed off without any call for a weaker dollar, and that instead France's Thierry Breton said the stabilisation of the euro in recent days was "welcome".

Sterling firmed 0.2 per cent to $1.8435 versus the dollar as UK factory gate inflation came in at 0.3 per cent in May, pushing the annual rate up from 2.5 to 3 per cent.

Howard Archer at Global Insight said the data "will heighten concern that high energy and raw material costs could be starting to increasingly feed through the supply chain".

The Hungarian forint and Polish zloty led a sell-off in eastern European currencies. - (Financial Times service)