Dollar Gains Most Since January on U.S. Economic Growth

The dollar rose the most in six months versus a basket of peers after economic reports showed U.S. growth rebounded, boosting bets the Federal Reserve is on pace to raise interest rates next year.

The greenback touched an eight-month high against the euro amid slowing inflation in Germany and the euro area. Emerging-market currencies declined as Standard & Poor’s deemed Argentina in “selective default,” and the U.S. and European Union imposed further sanctions on Russia for its support of rebels in eastern Ukraine. The European Central Bank is forecast to hold its main rate at a record low when it meets next week.

“The dollar has been performing very well in recent weeks on the back of stronger data,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said yesterday in a telephone interview. “I don’t see anything in the data that suggests deviation from the expectation the Fed will raise rates in the middle of 2015.”

HSBC forecasts the dollar to strengthen against the pound, with the next target past $1.6800.

The Bloomberg Dollar Spot Index added 0.7 percent this week in New York, the most since the period ending Jan. 17. It touched 1,023.42, the highest since March 20.

The euro was little changed on the week at $1.3427 after touching $1.3367, its lowest level since Nov. 12. The yen fell against the U.S. currency for a third week, losing 0.8 percent to 102.61. It fell 0.7 percent to 137.78 per euro. The pound fell a fourth week, declining 0.9 percent to $1.6821.

Argentina Debt

The dollar rose against all except three of 24 emerging-market currencies tracked by Bloomberg this week. The Indonesian rupiah was the worst performer, losing 1.9 percent, while Russia’s ruble dropped 1.8 percent. China’s yuan led gainers, adding 0.2 percent.

Argentina’s peso dropped for a 14th week after the nation missed a $539 million interest payment amid wrangling over a court order to pay several hedge funds that hold debt from the country’s 2001 default. Fitch Ratings lowered Argentina’s foreign debt rating on July 31, following S&P’s decision to do the same a day earlier. President Cristina Fernandez de Kirchner denies the country defaulted.

The peso fell 0.7 percent on the week, extending the longest losing streak since it depreciated for 100 consecutive weeks ending Jan. 31.

European Inflation

Russia’s ruble dropped for a third week as state-owned banks and a shipbuilder were added to the list of entities that face restrictions on business with the U.S. and European Union. The currency slid 1.8 percent on the week to 35.7893 per dollar.

The euro touched to an eight-month low against the greenback as inflation unexpectedly slowed in the 18 nations that share the currency last month, with a consumer price index slipping to 0.4 percent in July compared with 0.5 percent in June. That’s the lowest reading since 2009. Economists had forecast the rate to hold at 0.5 percent. Price increases in Germany, the region’s largest economy, also slowed, moderating to 0.8 percent in July from 1 percent in June.

European Central Bank President Mario Draghi cut interest rates to an all-time low on June 5 as policy makers seek to lift inflation toward their goal of just under 2 percent. The euro has fallen 1.x percent against the dollar since then. Policy makers meet Aug. 7.

Net Shorts

Futures traders’ bets that the euro will decline against the U.S. dollar rose to the biggest since August 2012, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an depreciation in the euro compared with those on a rise -- net shorts -- was 108,075 on July 29, compared with 88,823 a week earlier.

The Fed trimmed stimulatory bond purchases to $25 billion this week in its sixth consecutive $10 billion cut and is on track to end the purchases in October. Interest rates will probably stay low for a “considerable time” after the program finishes, the Federal Open Market Committee reiterated in its statement July 30.

Traders see a 58 percent chance Fed will raise its rate target to at least 0.5 percent by July 2015, up from 54 percent on July 1, based on futures contracts.

Payrolls Slack

Slack remains in the labor market, according to the FOMC’s statement. Employers added fewer jobs than forecast in July, boosting payrolls by 209,000, less than the 230,000 predicted by analysts surveyed before the release yesterday. The jobless rate increased to 6.2 percent, from 6.1 percent a month earlier.

“The expectations going into the report were pretty inflated,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York, said of the payrolls data yesterday. “The rally in the dollar got a little bit ahead of itself.”

Gross domestic product rebounded in the second quarter, data showed this week, expanding at a 4 percent annualized rate after shrinking 2.1 percent from January through March. The median forecast of 80 economists surveyed by Bloomberg called for a 3 percent advance.

Consumer spending rose by the most in three months in June. Household purchases, which account for about 70 percent of the economy, climbed 0.4 percent after a 0.3 percent gain in May that was larger than previously estimated.

“This week has really set the tone for the summer,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “Investors should look to sell the euro and the yen” against the dollar.

The dollar was the best performer this week among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Currency Indexes, adding 0.6 percent. The euro rose 0.57 percent and the yen dropped 0.2 percent.

To contact the reporters on this story: Rachel Evans in New York at revans43@bloomberg.net; Andrea Wong in New York at awong268@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle

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