Dollar Rallies to 3-Week High on Fed Rate-Increase Speculation

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Strong Dollar Bad for U.S. Earnings: Adam Parker

The dollar rose to a three-week high versus the euro on speculation Federal Reserve policy makers may undertake the first interest-rate increase since 2006 this year.

The greenback extended gains as Treasury yields rose, adding to the premium investors receive compared with government debt issued in Europe and Japan. The currency climbed versus most of its major peers with the U.S. central bank outlook contrasting with stimulus in Europe and continuing negotiations between Greece and its creditors.

“The dollar correction of the last couple of weeks is starting to run its course,” said Mike Moran, head of macro research for the Americas at Standard Chartered Plc, said by telephone from New York. “We’re moving back to a rate-differential story.”

The dollar strengthened 1.1 percent to $1.0659 per euro, rising for a fourth day in the longest streak in more than a month, as of 5 p.m. New York time. The greenback reached the strongest level since March 19.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, added 0.8 percent to 1,202.33.

Rate Difference

The greenback advance 0.4 percent at 120.58 yen as Treasury yields rose after demand declined at the U.S. sale of $13 billion in 30-year bonds. Bonds from the world’s largest economy yield more than similar-maturity debt in 16 other developed nations, according to data compiled by Bloomberg.

While several Fed officials pushed to raise benchmark rates in June, others argued for later this year and a couple favored holding until 2016.

“The minutes that we saw yesterday were surprisingly hawkish,” said Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington. U.S. economic and monetary-policy divergence from Europe and Japan “continues to be the main driver here. That’s why we believe that the longer term trend in the dollar will remain positive.”

The euro has slumped 7.3 percent this year, the worst performer among a basket of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The U.S. currency has gained 6.7 percent, the second-best performer after the Swiss franc.

“The policy-divergence story between the Fed and its peers remains a reason to buy the dollar at this point,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.

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