The dollar strengthened to almost a 12-year high against the euro as signs of cooling in China’s economy highlighted the diverging fortunes of the world’s two biggest economies.
The greenback advanced before a report Tuesday forecast to show U.S. retail sales increased by the most in a year, bolstering the case for the Federal Reserve to raise interest rates in 2015. The yuan and commodity currencies fell, led by Australia’s dollar, as a slump in trade growth amplified concern China will report later this week its slowest economic output since the global recession.
“The dollar has been trading on the stronger side,” said Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York. “I’m looking for confirmation that the economy was getting better toward the end of the first quarter. The market is anticipating good figures.”
The U.S. currency appreciated 0.4 percent to $1.0567 per euro at 5 p.m. New York time. It reached $1.0458 on March 16, the strongest level since January 2003. The U.S. currency slipped 0.1 percent to 120.13 yen.
Investors are buying the dollar again following a month-long consolidation on optimism the U.S. still leads global growth at a time when China, the euro zone and Japan are struggling to revive economic momentum.
The U.S. currency has gained 22 percent during the past 12 months, according to the Bloomberg Correlation-Weighted Index, driven by projections the Fed will raise interest rates this year.
“The dollar is likely to continue to strengthen,” said David Purdy, a Boston-based money manager at Acadian Asset Management LLC, which manages $70 billion of assets. “No matter what, the Fed is going to point to empirical results as the basis for their decision to either tighten or remain accommodative.”
U.S. retail sales rose 1.1 percent last month, based on a Bloomberg survey of economists. Retailers were hurt in February as bitter cold swept over parts of the U.S., discouraging consumer purchases.
China’s economy expanded 7 percent in the first three months of 2015 compared with a year earlier, analysts in another Bloomberg survey estimated before Wednesday’s report. That would be the slowest pace since the same period in 2009.
The dollar’s gains in the coming months will be muted compared with the most recent quarters, according to Morgan Stanley and JPMorgan Chase & Co.
“The anticipated re-acceleration of the U.S. economy should keep USD strong,” analysts including Hans Redeker, Morgan Stanley’s head of global foreign-exchange strategy, wrote in a note dated April 12. Gains will be slower as “valuations are important to consider here since USD has become more expensive, increasing headwinds for the U.S. economy. U.S. export dynamics have weakened markedly.”
The dollar gave up its gains versus the yen after Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, said monetary policy is working and the Japanese currency is weak in terms of purchasing power, cooling speculation the Bank of Japan will expand its stimulus program to spur growth and inflation.
Morgan Stanley lowered its year-end forecast for the dollar to 123 yen from 127 yen previously estimated, as the bank doesn’t expect the BOJ to increase its bond-buying program.