Dollar Strengthens as U.S. Retail Sales Gain for Second Month

  • U.S. currency advances against 13 of its 16 major peers
  • Fed meets this week to consider an interest-rate increase

The dollar rallied for the first time in four days after a government report showed U.S. retail sales rose for a second month in a row, adding to the case for the Federal Reserve to increase interest rates.

The U.S. currency gained along with stocks as climbing retail sales signal that consumers a boosting the economy by spending money they’ve saved from lower fuel and energy costs. The yen gained against the euro after the Bank of Japan refrained from expanding its easing program at its policy meeting on Tuesday.

"Given that the retail sales number was good, there’s still hope in terms of the market pricing that the Fed could go on Thursday," said Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.3 percent to 1,205.95 as of 5 p.m. in New York. The dollar strengthened 0.4 percent to $1.1269 per euro and added 0.2 percent to 120.44 yen.

Fed Watch

The Fed will meet this week to consider the first interest-rate increase since 2006, weighing whether economic growth and inflation are accelerating enough to merit reduced monetary stimulus.

Futures show a 30 percent chance the Fed will raise interest rates at this week’s policy meeting. That’s down from 38 percent at the end of August. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

"We are looking for a higher dollar," said Greg Anderson, the global head of foreign-exchange strategy at the Bank of Montreal. "We are looking for the most dovish rate hike in the history of monetary policy. That will be somewhat positive for the dollar but mostly against G-10 currencies rather than EM currencies."

U.S. retail sales rose 0.2 percent in August, following a 0.7 percent gain in July, which was larger than previously reported, figures from the Commerce Department show. Median forecasts from 84 economists surveyed by Bloomberg called for a 0.3 percent advance.

The yen added 0.3 percent to 135.70 per euro.

There’s growing speculation the Bank of Japan will expand its easing program. Eleven of 35 economists surveyed by Bloomberg before Tuesday’s meeting predicted the central bank will boost stimulus next month as BOJ Governor Haruhiko Kuroda chases a 2 percent inflation target. Last October, the policy chief defied market expectations by expanding the stimulus program -- which started in April 2013 -- to its current unprecedented size.

"What markets are really focused on right now is technical and market positioning," said Credit Agricole’s McCormick. "It’s really hard to pin down the currency moves on any fundamental drivers, but I think what we’ve seen in the last 48 hours is probably bullish for dollar-yen."

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