Dollar Climbs as Cautious Consumers No Obstacle to Fed Rate Rise

  • Greenback extends gains as PPI is weaker than forecast
  • Euro slumps amid data showing slower growth in the region

The dollar rose on speculation that weaker-than-forecast U.S. economic reports won’t stop the Federal Reserve from raising interest rates in December.

The currency strengthened against most of its major peers even as American consumer purchases were less than forecast last month and wholesale prices unexpectedly declined. The greenback gained earlier versus the euro as data showed economic growth in the currency bloc unexpectedly slowed in the third quarter, boosting expectations for further monetary easing from the European Central Bank.

“With the Fed so anxious to get off zero, this isn’t a data set that’s really going to change things,” Greg Anderson, global head of foreign-exchange strategy at Bank of Montreal, said by phone from New York. “I expect the dollar to continue to grind a little bit higher.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, rose 0.3 percent to 1,229.63 as of 5 p.m. in New York. The measure traded near its highest since December 2004.

The euro slid 0.4 percent to $1.0773, close to its lowest since April. The greenback was little changed versus Japan’s currency at 122.61 yen.

Brazil’s real led declines against the dollar, dropping 2.1 percent, amid a report President Dilma Rousseff is considering replacing Finance Minister Joaquim Levy. She hasn’t yet decided when the appointment would be made, Valor Economico reported.

Cautious Approach

U.S. policy makers are cautiously moving toward their first rate increase in almost a decade. Fed Vice Chairman Stanley Fischer said Thursday that it “may be appropriate” to raise borrowing costs next month, adding that the Fed’s decision to delay boosting rates has helped to offset economic headwinds caused by a stronger dollar.

Friday’s softer-than-forecast data did little to change investors’ conviction that the Fed will indeed increase borrowing costs in December. Futures contracts signal a 66 percent chance that officials will raise rates by year-end, about the same likelihood as on Thursday. The calculations assume the benchmark will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

Retail sales increased 0.1 percent after being little changed in September, Commerce Department figures showed. The median forecast of 84 economists surveyed by Bloomberg called for a 0.3 percent gain.

The 0.4 percent drop in the producer-price index followed a 0.5 percent decrease in September that was the biggest in eight months, Labor Department figures showed. The gauge was down 1.6 percent from the year before, the most in records back to November 2010.

“Although these numbers are lighter than expected, they won’t derail the Fed next month,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. “The dollar looks set for a period of consolidation, given that it’s enjoyed robust gains over a short period of time.”

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