Dollar Rises to 5-Year High on Economic Growth; Real Declines

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A gauge of the dollar climbed to a five-year high after the economy expanded at the fastest pace in more than a decade, supporting the case for the Federal Reserve to raise interest rates.

The greenback advanced for a fifth day against the yen as consumer spending accelerated more than estimated. Traders see a 68 percent chance the Fed will raise borrowing costs by September, fed-funds futures data compiled by Bloomberg show. Brazil’s real dragged an emerging-markets index lower as the Fed moves closer to ending easy-money policies. The euro fell to a two-year low on bets Greece is headed for early elections.

“GDP was the main catalyst,” said Masafumi Takada, a New York-based director at BNP Paribas SA. “2015 is still believed to be the year of the dollar, so the market started positioning long dollar-yen and short euro,” he said, referring to bets the dollar will gain against both peers.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.5 percent to 1,133.13 at 5 p.m. New York time, the highest close basis since March 2009.

The dollar climbed 0.5 percent to 120.69 yen and headed for a fifth day of gains, its longest streak since Nov. 20. The U.S. currency added 0.5 percent to $1.2172 per euro after appreciating to $1.2165, the strongest since August 2012. The euro was little changed at 146.90 yen.

Real Drops

Brazil’s real declined on speculation the Fed will reduce demand for emerging-market assets by raising interest rates. The real fell 1.1 percent to 2.6948 per U.S. dollar.

A Bloomberg index with equal weightings of the dollar’s 20 major emerging-market rivals declined for the first time in five days, dropping 0.4 percent to 81.6733. It touched 80.3831 on Dec. 16, the lowest level since 2002.

The ruble strengthened for a third day on speculation Russian Prime Minister Dmitry Medvedev ordered companies to sell foreign exchange received from exports, while tax payments boosted demand for the currency. The currency rose 2.3 percent to 54.5035 after touching 80.10 on Dec. 16, the weakest level on record.

The gains trimmed the ruble’s monthly loss to 9.6 percent, the most among the dollar’s top 31 peers. The Norwegian krone and Mexico’s peso fell almost 6 percent.

South Korea’s won, up 0.5 percent, is the only major currency to advance against the greenback in December.

Greek Vote

The euro weakened as Greek Prime Minister Antonis Samaras failed to get support among lawmakers for his choice, Stavros Dimas, for president. Attention now turns to the final attempt on Dec. 29. Failure will dissolve parliament and lead to early elections.

The dollar gained as U.S. gross domestic product grew at a 5 percent annual rate from July through September, the biggest advance since the third quarter of 2003, and up from a previously estimated 3.9 percent, revised figures from the Commerce Department showed today in Washington. The median forecast of 75 economists surveyed by Bloomberg projected a 4.3 percent increase.

Household purchases climbed 0.6 percent, the most in three months, after a 0.3 percent October gain that was larger than previously estimated, figures showed. The median forecast of 76 economists in a Bloomberg survey called for a 0.5 percent rise. Incomes advanced 0.4 percent, the most since June, and the savings rate dropped.

‘Net Positive’

“This is a net positive for the dollar,” said Quincy Krosby, a market strategist at Prudential Financial based in Newark, New Jersey, which oversees $1 trillion in assets. “These are the kind of numbers that are in line with a recovery in the real economy, the kind of recovery that’ll be felt on Main Street.”

Prudential is “constructive on the dollar against the euro and the yen in the long term,” Krosby said.

A separate report showed orders for U.S. durable goods unexpectedly declined 0.7 percent in November, the third decline in four months. The median forecast of 77 economists surveyed by Bloomberg called for a 3 percent gain after a 0.3 percent increase in October.

“The November durables reading was certainly disappointing,” Matt Derr, a foreign-exchange strategist in New York at Credit Suisse Group AG, said by e-mail. “With the GDP revision backward-looking, I would expect the market to focus more on the soft durables. Nonetheless, this shouldn’t change the broader USD direction, but add to near-term chop.”

The chances of a Fed interest-rate increase by its September meeting increased from 53 percent on Dec. 16, according to futures data. The central bank has held its target for the federal funds rate at zero to 0.25 percent since December 2008.

The dollar has surged 13 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 1.6 percent and the yen declined 3.3 percent.

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