The dollar Friday was poised to record its largest weekly gain versus the euro in three years, on a growing consensus that the U.S. Federal Reserve will increase interest rates soon to check rising U.S. inflation.

The dollar traded up about one-half cent to $1.5372 versus the euro early Friday afternoon - - a level that if sustained at the New York close at 5 p.m. EDT would give the greenback its biggest weekly gain since early 2005, Bloomberg News reported Friday.

The dollar also rose Friday against the other major currencies. The dollar increased about one-half cent to $1.9494 versus the British pound, and about sixth-tenths of a cent to $1.0476 versus the Swiss franc. The dollar was unchanged versus Japan's yen at 107.90 yen.

Currency trader Andrew Resnick said Friday's May U.S. consumer price index statistic, which showed a 0.6% increase in inflation, while only slightly above expectations, was enough to add strength to the dollar bulls' argument.

"The core May inflation number was not that high, but [U.S. Federal Reserve Chairman] Bernanke will stress the top-line stat, which will most likely lead to an interest rate increase later this year," Resnick said. "And there could be more than one increase in this cycle, so that introduces the possibility of a dollar reversal." Resnick added that he remains flat, with no open currency positions presently.

A lasting dollar rally ahead?

Resnick underscored the "possibility" of a dollar reversal because throughout the dollar's four-year decline, the currency markets have been subject to many false dollar-higher breakouts.

"Each time the dollar has popped up this year there's been a fundamental or stat to reaffirm the weaker dollar trend," Resnick said. "But this time may be different because Bernanke is sending clear signals that those who think the Fed is going to take an easy stance on higher inflation are going to be sorely mistaken. There's a consensus now that Bernanke will rein-in inflation expectations with interest rate increases, so that will help support the dollar as the year continues."

Along with the U.S.'s economic doldrums and other factors, the euro has advanced against the dollar in 2007-2008 in part due to the interest rate differential between the two currencies. The Fed has lowered its benchmark rate to 2% from 5.25% since September 2007 to prevent the nation's worst housing slump in a generation from stalling economic growth. Meanwhile, the European Central Bank has kept its main refinancing rate at a six-year high of 4% since June 2007. If the interest rate differential decreases, money will begin to flow back into the dollar, all other factors being equal, strengthening the currency.