Dollar Climbs to 3-Week High as Inflation Bolsters Confidence

How Will the Fed React to Higher Consumer Prices?
  • Consumer prices in U.S. rose in April by most since 2013
  • Greenback gauge trims 2016 loss on stronger economic data

The dollar reached an a three-week high against the yen as the cost of living in the U.S. climbed by the most in three years.

The greenback fluctuated after data showed consumer prices increased 0.4 percent in April, the biggest gain since February 2013. The figures suggest inflation may be picking up toward the Federal Reserve’s 2 percent goal. U.S. manufacturing rose in April for the first time in three months, indicating a respite for the industry after a one-year slump.

“Investors are starting to pare back some of the negativity on the dollar," said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. "The dollar’s got some room to move higher here.”

The upswing in the greenback comes as data on U.S. retail sales and consumer confidence show the world’s largest economy is escaping from a soft patch, according to Brown Brothers Harriman & Co. A gauge of the dollar has risen for the past two weeks, trimming its loss to 3.6 percent this year, as signs of stronger economic performance add to evidence that may convince the central bank to tighten policy.

The U.S. currency was little changed at 108.99 yen as of 10:11 a.m. in New York, after reaching the highest level on a closing basis since April 27. It declined 0.2 percent to $1.1342 per euro.

“The dollar can continue to rally tactically, but until we get a critical mass of better U.S. data that builds Fed confidence about the economy, we are likely not seeing a longer-term U.S. dollar rally,” said Ian Gordon, a foreign-exchange strategist at Bank of America Corp. in New York.

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