The dollar surged to a four-month high as a report showed the U.S. economy grew in the first half of the year, a day after the Federal Reserve took a step closer to raising interest rates.
The U.S. currency strengthened against all of its 16 major peers as data showed the world’s biggest economy expanded at a faster pace in the second quarter and eked out a gain at the start of the year. On Wednesday, Fed policy makers turned more bullish on employment compared with their meeting in June as they decide when to raise interest rates for the first time since 2006.
“Do I think the dollar has more strength in it? Absolutely,” said Tina Byles Williams, the Philadelphia-based chief executive officer of FIS Group, which has around $5 billion under management. Weakness in the first quarter “was, in fact, transitory.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, gained 0.3 percent to 1,211.11 at 5 p.m. in New York. It reached the highest since March, when it rose to a record in data going back to 2004.
The U.S. currency gained for a third straight day against both the euro and the yen, rising 0.5 percent to $1.0932 against the euro and 0.2 percent to 124.14 yen.
The Fed made a one-word change to the language of its policy statement on conditions that would justify a rate increase: It needs to see “some further improvement in the labor market,” adding the modifier “some.”
A report from the Labor Department Thursday showed fewer Americans than forecast filed applications for unemployment benefits last week. Jobless claims rose from a 42-year low by 12,000 to 267,000 in the period ended July 25.
The GDP data and Wednesday’s Fed statement “all point to a rate rise in September, which we think will be good for the dollar,” Stephen Simonis Sr., chief currency analyst in New York at online foreign exchange broker FXDD Global, said by phone.
Fed funds futures show a 50 percent probability of a September rate increase, up from 39 percent yesterday. The futures indicate a second central bank rate increase won’t take place before June 2016. That month’s contracts are trading at 0.67 percent, above the mid-point for a second 25-basis-point increase from the Fed.
“The dollar rally continues,” Mark McCormick, a foreign-exchange strategist in New York at Credit Agricole SA, said by phone. “The data is moving in line with expectation that the Fed will raise rates in September.”