LONDON, May 7: The dollar climbed strongly against the euro and yen on Wednesday, supported by hopes that the worst of the credit crunch is over and that the US economy will hold up better than expected, dealers said.

They said the European Central Bank and the Bank of England are both expected to leave interest rates unchanged on Thursday, at 4.00 per cent and 5.00 per cent respectively.

While that will keep in place a large interest rate differential with the dollar, the US currency was supported on the view the US economy is holding up despite the credit crunch caused by the subprime home loan crisis there.

Better-than-expected US labour productivity figures helped boost that more positive view although some analysts cautioned that there could still be bad news as the US property market continues to contract.

In European trade, the euro fell to $1.5375 from $1.5530 in New York late on Tuesday.

The dollar gained to 105.29 yen from 104.75 yen.

The US currency was “supported by market optimism that the credit crunch is starting to ease to some extent,” said Kenichi Yumoto at Societe Generale.

The dollar’s gains were capped by jitters about crude oil prices, which hit a new record high at $122.81 per barrel on Wednesday.

In London on Wednesday, the euro changed hands at $1.5375 against $1.5530 late on Tuesday, at 161.87 yen (162.68), 0.7875 pounds (0.7869) and 1.6268 Swiss francs (1.6335).

The dollar stood at 105.29 yen (104.75) and 1.0582 Swiss francs (1.0515).

The pound was at $1.9517 ($1.9735).

On the London Bullion Market, the price of gold fell to $868.25 per ounce from $880 late on Tuesday.—AFP