Dollar Rounds Out Week of Gains as U.S. Growth Revised Higher

  • Commodities have first weekly drop in more than a month
  • Many markets shut in Europe, Asia, Americas for holidays

The dollar extended this week’s advance after a report showed the U.S. economy grew at a faster pace than previously estimated, bolstering the case for raising interest rates. Gold held near a one-month low while a retreat in the yen boosted Japanese shares.

The Bloomberg Dollar Spot Index capped its biggest weekly gain since November after Commerce Department figures showed the economy expanded 1.4 percent in the fourth quarter. The data follows warnings from Federal Reserve officials this week that the next U.S. rate increase may come as soon as April. South Korea’s won led declines among major currencies on Friday as the yen hit a one-week low. Financial markets across Europe, the Americas and Asia were shut Friday for holidays.

“The revised data so far only increase the probability of a rate hike in the middle of the year,” said Alexander Losev, chief executive officer at Sputnik Asset Management in Moscow. “The rhetoric at the April meeting may turn more hawkish, further fueling speculation."

Gains in the U.S. currency this week spurred declines in prices of raw materials, helping derail a five-week rally in global stocks. Fed Bank of St. Louis President James Bullard said on Thursday that officials may be getting close to lifting rates again, provided growth continues as forecast. He was one of at least four regional Fed presidents to have talked up the possibility of a rate hike, comments that helped revive demand for the dollar after a dovish outcome to the Fed’s March 15-16 meeting sent the dollar tumbling.

The U.S. fourth-quarter growth figure compared with a previous estimate of 1 percent and reflected more spending on services, while exports declined less than previously estimated. Household purchases, which account for almost 70 percent of the economy, rose at a 2.4 percent annual pace, compared with a previously estimated 2 percent rate.

“Concern about a U.S. interest-rate hike has re-emerged after most data in the U.S. show strong economic growth,” Win Udomrachtavanich, chief executive officer of One Asset Management Ltd. in Bangkok, which oversees some $2.8 billion, said before the Commerce Department report. "The possibility of a rate hike will definitely reignite the outflows of funds back to the U.S., especially from emerging markets.”

Currencies

The Bloomberg Dollar Spot Index increased 0.1 percent at 4 p.m. in London, extending this week’s advance to 1.3 percent. It sank last week to the lowest level since June after the Fed halved its projection for the number of interest-rate increases this year.

U.S. releases on Thursday showed fewer jobless claims than forecast in the week through March 19 and durable goods orders fell less than projected last month. American data have steadily improved over the last few weeks, with Bloomberg’s gauge of economic surprises climbing to the most positive level in more than a year.

“The data should continue to strengthen, it should continue to surprise a little bit and that should be sufficient for them to go in June,” Binky Chadha, chief global strategist at Deutsche Bank AG, said in an interview on Bloomberg Television. The upside for the greenback may be limited as “the dollar itself has also priced in a lot.”

Fed funds futures indicate a 73 percent chance of a U.S. interest-rate increase this year, up from 68 percent a week ago.

The yen fell for a sixth day, weakening as much as 0.4 percent versus the dollar. Japan’s public pension funds boosted holdings of foreign assets to a record in the three months through December, central bank data showed Friday.

South Korea’s won declined 0.2 percent. Sterling dropped 2.4 percent this week amid speculation deadly terror attacks in Brussels will boost the case of campaigners who want the U.K. to leave the European Union. 

The ruble strengthened 0.4 percent on Friday as companies bought the currency to meet local tax payments. Thailand’s baht erased an earlier loss after trade data showed an unexpected increase in the nation’s exports.

The yuan lost 0.9 percent in offshore trading this week, its steepest slide since January, as the Wall Street Journal reported that the International Monetary Fund was pressuring China’s central bank for more transparency on its use of currency derivatives. The report prompted speculation policy markers will rein in intervention that supports the exchange rate, according to Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp.

Stocks

The MSCI Asia Pacific Index climbed 0.4 percent, trimming this week’s loss to 0.8 percent.

Japan’s Topix index rose 0.8 percent as a weaker yen boosted exporters. Toyota Motor Corp. and Honda Motor Co. both gained 2.8 percent in Tokyo. BlackRock Inc., the world’s largest money manager, downgraded its assessment on Japanese equities to neutral from overweight in a report dated March 23.

The Shanghai Composite Index added 0.6 percent. Kweichow Moutai Co. gained for a fifth day, its longest winning streak in four months, after China International Capital Corp. said the liquor maker’s earnings may beat consensus estimates this year. Australia, Hong Kong and Singapore were among the markets shut for holidays.

Equity benchmarks for Russia and Turkey were little changed on Friday, leaving them weekly drops of more than 1.5 percent. 

The Standard & Poor’s 500 Index was little changed on Thursday, capping a 0.7 percent weekly loss, its first decline for the period in six weeks. The Stoxx Europe 600 Index lost 1.9 percent in the shortened week.

Commodities

Commodities had their first weekly loss in more than a month with crude oil having settled below $40 a barrel in New York.

The Bloomberg Commodity Index was down 1.9 percent for the week. Crude oil closed at $39.46 a barrel on Thursday in New York, having two days earlier climbed to a three-month high of $41.90. It was little changed from a week ago.

Gold slid 3.1 percent this week, its biggest drop since November. The London Metal Exchange’s gauge of industrial metals sank 1.9 percent, the most in two months, as aluminum had its worst week since October. Aluminum fared better in Shanghai, where it advanced to a five-month high on Friday.

Bonds

The yield on Japanese government bonds due in a decade was minus 0.093 percent, little changed from Thursday. The rate on similar-maturity debt in China fell one basis point to 2.84 percent. U.S. Treasuries yield 1.9 percent, three basis points more than at the end of last week, and the rate on benchmark bunds was at 0.18 percent on Thursday.

Taiwan’s 10-year yield increased by two basis points to 0.82 percent on Friday. The island’s central bank lowered its benchmark discount rate by 12.5 basis points to 1.5 percent on Thursday, reducing borrowing costs for the third quarterly policy meeting in a row. Twenty-two of 26 economists surveyed by Bloomberg forecast the move, while three predicted a bigger cut.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE