Dollar Gains Most Since May on Confidence Over Fed Rate Increase

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The dollar posted its biggest weekly advance since May amid a growing conviction that U.S. economic growth will prompt an interest-rate increase from the Federal Reserve this year.

The U.S. currency gained for the first time in four weeks versus the euro as investors, speculating that an 11th-hour deal will be reached on Greek aid, turned their attention to monetary policy and the economy. A report showed June consumer sentiment reached a five-month high.

“It will be the growth and monetary policy story that drives the dollar higher,” Shaun Osborne, head of global foreign-exchange strategy at Toronto-Dominion Bank, said by phone. “We’ve had a run of fairly decent data in the U.S., which suggest that the second quarter growth profile is looking remarkably better.”

The Bloomberg Dollar Spot Index climbed 1.1 percent this week to 1,180.11 as of 5 p.m. New York time, the biggest gain since May 22.

The dollar strengthened 1.6 percent to $1.1167 per euro and climbed 0.9 percent in the week to 123.85 yen.

Fed Policy

“Once you take out the Greek headlines and ask where is the U.S. compared to Europe in terms of economic standing, I wouldn’t be surprised if euro-dollar trades closer to $1.10 again,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California.

Fed policy makers have stressed that the timing of the first rate increase since 2006 will depend on the economy.

Bloomberg’s U.S. economic surprise index climbed to minus 0.52 on Thursday, showing that while data are still falling short of strategists’ estimates, they’re improving.

Futures show a 38 percent chance the Fed will increase its benchmark rate from near zero by September, and a 73 percent probability of an increase by December, according to data compiled by Bloomberg.

Europe’s single currency weakened Friday before finance chiefs reconvene at the weekend for their fifth session on Greece in just over a week.

“Markets are in a bind until the results come,” said Kazuo Shirai, a trader in Los Angeles at MUFG Union Bank NA. “Many are sidelined and unlikely to take positions before the weekend.”

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