Traders Reviving Fed Rate-Rise Bets Put a Floor Under the Dollar

Traders boosted bets of an increase in U.S. borrowing costs this year, helping a gauge of the dollar hold its advance after climbing to a one-week high on Friday.

The U.S. currency has strengthened against all its Group of 10 peers since July 14 after data the following day showed retail sales and factory output beat estimates. Futures contracts show the probability of a rate increase by the Federal Reserve by December has climbed to 44 percent from 9 percent at the end of last month, when global markets convulsed following the U.K.’s vote to leave the European Union.

“The U.S. looks like a bright spot for the global economy,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The impact of the Brexit has been quite muted outside the U.K. We are, by and large, in a consolidation of the U.S. dollar with a bias for it to move stronger later in the year.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose less than 0.1 percent as of 2:52 p.m. in Tokyo, after climbing 0.4 percent on Friday. The measure is down 3.3 percent in 2016 after a 21 percent rally in the previous two years.

Hedge funds and other money managers boosted net bullish futures bets on the dollar for the first time in three weeks, with net long positions outnumbering bearish wagers by 96,234 contracts, data from the Commodity Futures Trading Commission show. Concern about the health of the world’s largest economy has abated following a solid rebound in non-farm payrolls in June. U.S. policy makers next meet July 26-27.

“Doubts about the sustainability of U.S. growth seem to be diminishing,” said Mitul Kotecha, head of Asia currency and rates strategy at Barclays Plc in Singapore. “Our economists still think there is still a good chance of a September hike by the Fed. Their view is that the Fed is not going to be particularly concerned by the Brexit vote.”

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