Dollar Rises to 6-Week High as Retail Sales Gain Tops Forecast

  • Second weekly gain reflects speculation Fed will raise rates
  • Economic sentiment strengthens after 1st quarter slowdown

The dollar rose to the highest in more than a month after data showed April retail sales increased by the most in a year, re-igniting speculation the Federal Reserve may raise interest rates this year.

The greenback advanced for a second week as consumer purchases jumped the most in a year, indicating retail spending will help the economy recover from an early-year slowdown.  Another report showed consumer confidence in the U.S. jumped in May to the highest level in almost a year. Bloomberg Dollar Spot Index exceeded its 50-day moving average for the first time since February.

“The dollar has been on a nice run,” said Jennifer Vail, head of fixed-income research in Portland, Oregon at U.S. Bank Wealth Management, which oversees about $125 billion. "It’s a direct reflection of comfort in the sustainability of domestic economic growth."

The U.S. currency extended its rebound from an almost one-year low reached earlier this month, with signs of stronger economic performance adding to evidence that may convince the central bank to tighten policy. That bolsters the relative allure of the dollar as policy makers in Europe and Japan are forecast to expand monetary stimulus.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, rose 0.5 percent as of 5 p.m. New York time, touching the strongest level on an closing basis since March 28.

The index rose to a 0.9 percent weekly gain after touching 1,150.22 on May 3, the lowest level since May 2015.

Economic Update

The retail sales and consumer confidence gains suggest the economy is shaking off early-year weakness when gross-domestic-product growth slowed to a 0.5 percent annual rate. The economy is projected to expand 1.8 percent this year, down from 2.4 percent in 2015.

"The dollar’s strengthening a little bit, it’s always good to see good economic news," said Fabian Eliasson, head of U.S. corporate foreign-exchange sales in New York at Mizuho Financial Group Inc. "If you keep having more and more positive news, showing the economy’s becoming solid, a Fed hike is going to come back into play."

Boston Fed President Eric Rosengren and the Kansas City Fed’s Esther George, both voters on the Federal Open Market Committee this year, said Thursday that the central bank risks stoking an asset bubble by delaying action for too long.

The recent rally led hedge funds and other large speculators to reduce their bets on dollar weakness versus eight major currencies. Positions that benefit from losses by the U.S. currency exceeded those that benefit from a rally by a net 37,321 contracts in the week ended May 10, a report from the Commodity Futures Trading Commission showed.

The U.S. currency is forecast to strengthen to $1.12 per euro and 115 yen by the end of the year, according to the median estimates in Bloomberg surveys.

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