June 13 (Bloomberg) -- The dollar headed for its biggest weekly gain in more than three years against the euro on speculation officials from the Group of Eight nations meeting on the weekend will signal they favor a stronger U.S. currency.

The euro also fell on concern voters in Ireland will reject the European Union's new governing treaty designed to boost the strength of the 27-nation bloc. The dollar was poised for the largest weekly advance versus the yen since 2004 before a government report that may show U.S. inflation accelerated, giving the Federal Reserve more reason to raise interest rates.

``There is a lot of nervousness ahead of the Irish vote so that is keeping the euro under pressure,'' said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. ``If we do get a `no' vote from Ireland, we're likely to see the euro testing recent lows around $1.52.''

The dollar advanced to $1.5319 per euro at 7:04 a.m. in New York, from $1.5439 yesterday. The dollar rose 3 percent this week, the most since the five days ending Jan. 7, 2005. The currency traded at 108.33 yen, from 107.96 yesterday. It has risen 3.1 percent this week, the biggest advance since February 2004. The euro fell to 165.95 yen, from 166.68.

Officials in Ireland's 43 constituencies started totaling votes at 9 a.m. Dublin time and returning officers expect the result later today. Early tallies showed opponents leading supporters by as much as 60 percent to 40 percent in some districts, state broadcaster RTE reported.

U.S. `Serious'

The dollar's gains are ``very satisfying,'' French Finance Minister Christine Lagarde told reporters in Osaka, Japan, before meeting her counterparts today and tomorrow. Treasury Secretary Henry Paulson signaled this week intervention is always possible.

``The U.S. is serious about putting a floor under the dollar,'' said Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort, the investment bank owned by Allianz SE, Europe's biggest insurer. ``Fed officials are saying they are well aware of the link between dollar weakness and higher inflation and this by itself means the Fed will do what it can to prevent the dollar from moving lower.''

The U.S. currency may rise to $1.45 a euro by the end of the year, according to Klawitter.

The yen still headed for its fifth weekly decline versus the euro, the longest losing streak since October, after the Bank of Japan concluded a two-day policy meeting in Tokyo by leaving its the key overnight rate at 0.5 percent. The Australian dollar headed for its biggest weekly loss in almost three months and the New Zealand currency was poised for a third weekly decline as traders added to bets the Fed will raise rates.

Yen `Negative'

``The Bank of Japan will not hike rates, so consequently the spread between Japan and the rest of the world will increase,'' Klawitter said. ``That's a negative for the yen.''

The U.S. currency rebounded from a six-week low versus the euro on June 9 after Paulson said in an interview with CNBC that he would ``never'' rule out currency intervention. The dollar has fallen 13 percent against the euro in the past year as the Fed lowered its benchmark rate to 2 percent from 5.25 percent to prevent widening subprime losses from stalling economic growth.

The economic outlook has improved from a month ago and central bankers will combat any increase in inflation expectations, Fed Chairman Ben S. Bernanke said the same day. He also said on June 3 he's aware of the impact a falling currency can have on price expectations.

Japan's Finance Minister Fukushiro Nukaga told reporters in Tokyo today he and Paulson may discuss currencies on the sidelines of the G-8 gathering. The group comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada and Russia.

Intervention History

``Sentiment is in favor of a continued dollar recovery,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``There are suggestions left, right and center that there will be intervention.''

The dollar may rise to 108.50 yen and $1.5350 a euro in coming days, he said.

The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Foreign-exchange rates should reflect the state of each economy, Governor Masaaki Shirakawa said at a press conference in Tokyo today. It isn't appropriate to focus solely on currencies when setting policy, he added.

Consumer-Price Report

The dollar has risen against all 16 of the most-traded currencies this week as a Commerce Department report yesterday showed U.S. retail sales increased 1 percent in May as Americans used their tax rebates to shop.

Consumer prices in the U.S. rose 0.5 percent last month after a 0.2 percent increase in April, according to the median forecast of economists surveyed by Bloomberg. The Labor Department will release its report at 8:30 a.m. in Washington.

The U.S. currency held it gains even after the European Union's statistics office said labor costs rose 3.3 percent in the first quarter, the most since the second quarter of 2003. Inflation in Germany, Europe's largest economy, also accelerated more than initially reported in May as the cost of oil surged. Consumer prices, based on a harmonized European Union method, increased 3.1 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today.

The yield spread between two-year U.S. Treasury notes and similar-maturity German government bonds has narrowed to 1.58 percentage points and approaching the least since May 14, increasing the allure of dollar-denominated assets.

Fed funds futures on the Chicago Board of Trade showed yesterday a 70 percent chance the central bank will increase the target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago.

The European Central Bank has kept its main refinancing rate at a six-year high of 4 percent since last June.

Australia's currency traded at 93.55 U.S. cents, from 93.68 cents in late Asian trading yesterday and 96.26 a week ago in New York. New Zealand's currency was at 74.56 U.S. cents, from 75.17 cents yesterday and 76.74 cents June 6.

To contact the reporters on this story: Kim-Mai Cutler in Tokyo at kcutler@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: June 13, 2008 07:07 EDT