The dollar got a boost from comments by Federal Reserve Bank of Kansas City President Thomas Hoenig. A member of the Federal Reserve board, Hoenig says he is in favor of an increase in the Fed funds rate from its current position near zero per cent to closer to one per cent.

Despite commentary after the most recent Central bank meeting suggested an ‘extended’ period of time before rates are raised, Hoenig says he did not support comments in the last two meeting minutes that indicated a long-term hold on rates.

The Fed is concerned that if it acts too quickly to raise rates, it could have a negative effect on housing and jobs markets that are the main question marks left on the economic front. If borrowing costs go up, consumers and business owners are more restricted on their ability to buy and invest in the economy. The housing market has survived on low borrowing costs during the last two years.

Hoenig is more concerned that a failure to act swiftly enough to increase rates could lead to a very serious problem with inflation. This is generally the challenge for the Fed in timing its rate moves appropriately. Some economists support Hoenig’s notion that if rates are increased too late, inflation could take hold before intervention can help.

Hoenig was in New Mexico when he made his comments. He believes a financial crisis could be the result if credit and market imbalances are allowed to take place because of zero per cent interest.

The dollar made gains against both its major European counterparts Wednesday during New York trade, perhaps somewhat attributable to Hoenig’s remarks.

One Euro currently fetches around $1.3354 while the British Pound is worth $1.5248.

A quick move toward the one per cent interest rate level for the basis rate could lead to a high flying dollar if speculators are not prepared for such a move. Higher interest leaders to better interest yields for currency speculators. Expectations for rate increases are usually built into forex prices well ahead of actual events. However, a prompt jump from zero to near one per cent could lead to even more momentum buying of the dollar in the short-term.