The dollar strengthened against the euro, capping its biggest weekly advance since 2011, as the Federal Reserve considers raising interest rates while global peers including the European Central Bank add stimulus.
A gauge of the greenback rose to a three-week high on speculation U.S. borrowing costs will climb this year, even after some Fed officials urged waiting until 2016. Fed Bank of Richmond President Jeffrey Lacker said he continues to favor a first increase in June because recent soft readings on the economy will probably prove temporary. A report next week is forecast to show American retail sales rose in March, offsetting a run of weaker-than-forecast economic indicators.
“A hike this year is still very much a more likely scenario than a liftoff in 2016, so perhaps that had a little something to do with the moves in currencies,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut. “The data over the next week or two is, I think, going to be much more pivotal.”
The dollar added 0.5 percent to $1.0604 per euro at 5 p.m. New York time. The greenback appreciated 3.3 percent against the 19-nation currency since April 3.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,204.23. It gained 1.8 percent on the week, its first advance since the period ending March 13. The dollar weakened 0.3 percent to 120.22 yen, paring its weekly advance to 1.1 percent.
Net bullish bets for the dollar to strengthen against the euro by hedge funds and money managers remained at almost a record, according to Commodity Futures Trading Commission data. Futures positions betting on a stronger greenback versus the shared currency were at 215,258 contracts as of April 8, down from the record 226,560 reached the week before.
The currency climbed versus most of its 16 major counterparts this week, and all except two Friday, touching $1.4587 per British pound, its strongest level in five years.
The dollar drew strength this week from minutes of the Fed’s latest meeting, which showed some policy makers recommended raising interest rates in June, even as others argued for later this year and a couple favored holding rates near zero until 2016.
“Coming back to the dollar theme seems to be a dominant trend of markets,” Richard Cochinos, head of Americas Group of 10 currency strategy at Citigroup Inc. in New York, said by phone. “There seems to be a line of thought or rhetoric coming out of the Fed that ultimately they expect this weakness in the U.S. economy to pass through quite quickly.”
The dollar retreated to a one-month low at the end of last week when a U.S. government report on nonfarm payrolls undershot even the most bearish of economists’ estimates.
Retail sales are forecast to show the economy in a more positive light next week, climbing in March after three months of contraction, while core inflation data will show prices rising 1.7 percent from a year earlier.
“The dollar strength we’re seeing just represents the underlying economic and monetary policy trends,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said by phone. “The U.S. economy, although it’s going through a soft patch, is expected to perform well this year and the Fed appears to be on course to normalize monetary policy.”