Dollar Rises to Highest in Month as U.S. Outperforms

A gauge of the dollar rose to the highest level in a more than month amid signs the U.S. economy, beset by years of sluggish growth, is outperforming its major peers.

The Bloomberg Dollar Spot Index posted a second weekly gain before reports next week that analysts said will show the world’s biggest economy expanded in the second quarter and employers boosted payrolls. The euro fell to the lowest since November versus the dollar after a measure of German business confidence declined more than economists forecast in July. Sweden’s krona touched a three-week high versus the euro as a report showed retail sales increased.

“The U.S. dollar doesn’t necessarily move first off of data,” Neil Azous, founder of Stamford, Connecticut-based research firm Rareview Macro LLC, said in a phone interview. “It’s certainly becoming part of the equation because if the data is weaker in Europe and it’s stronger in the U.S., the euro deteriorates. And that matters to the interest-rate differential story.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.2 percent to 1,014.12 at 5 p.m. New York time after touching 1,014.39, the highest level since June 18.

The gauge gained 0.5 percent this week, the most since the five days ended March 21. It follows a 0.3 percent gain last week for the first multiweek rally since May.

The dollar climbed 0.3 percent to $1.3430 per euro after advancing to $1.3422, the strongest since Nov. 21. The U.S. currency was little changed at 101.84 yen. The euro dropped 0.2 percent to 136.77 yen.

Krona, Ruble

The krona gained as Swedish retail sales climbed 0.5 percent in June, a report showed today. Economists forecast a reading of 0.4 percent.

Sweden’s currency gained as much as 0.4 percent to 9.1526 per euro, its strongest level since July 2, before closing down 0.1 percent. The krona added 0.1 percent to 6.8221 per U.S. dollar.

Russia’s ruble weakened for a second day, even as the nation’s central bank unexpectedly raised borrowing costs, to 8 percent from 7.5 percent, for a third time this year.

The intensifying conflict over Ukraine and the threat of wider sanctions have squeezed the economy and undercut the currency. It’s been the worst performer among 24 emerging-market currencies tracked by Bloomberg since the U.S. expanded sanctions July 16, dropping 1.3 percent.

The ruble fell 0.5 percent to 35.1435 per dollar and weakened 0.1 percent versus the central bank’s target basket of dollars and euros, to 40.5590.

Durable Goods

The dollar held earlier gains as demand for all U.S. durable goods -- items meant to last at least three years -- increased 0.7 percent versus a median forecast of 0.5 percent in a Bloomberg survey of 82 economists. The May reading was revised to show a 1 percent drop.

Non-defense capital goods shipments excluding aircraft fell 1 percent and the May figure was revised to minus 0.1 percent.

“The durable goods report wasn’t really as good as everybody was hoping to see.” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said by phone. “The non-defense capital goods excluding aircraft, that measure is a proxy for future business investment spending, and that fell 1 percent and last month’s figure was revised lower. That would indicate that business investment going forward may be on the softer side.”

Interest Rates

The U.S. economy is forecast to expand 1.7 percent this year, compared with 1 percent growth for countries that use the euro, according to the median estimate of economists surveyed by Bloomberg. Japan’s gross domestic product is estimated to increase 1.5 percent.

After reaching a bullish peak in January, net futures positions betting on gains in the dollar versus eight major currencies have been liquidated, reaching a net bearish position on April 8, according to CFTC data compiled by Bloomberg.

Net bearish dollar positions stood at 47,168 contracts as of July 15, compared with a 2014 peak net bullish position of 241,987 contracts on Jan. 21.

“There’s isn’t anybody who’s really outright expressing their view of long U.S. dollar in any material way,” Rareview Macro’s Azous said. “If they’re expressing a view as it relates to interest rates, everybody is very much in fixed-income instead.”

U.S. Treasury 10-year notes were yielding 132 basis points, or 1.32 percentage point, more than similar maturity German bunds. The gap reached 137 basis points on July 4, the most since 1999, according to data compiled by Bloomberg.

Fed Effect

The dollar index tumbled 0.4 percent on June 18 after Federal Reserve Chair Janet Yellen said the central bank plans to keep its interest-rate target low for a considerable time after it ends bond-buying. The gauge bottomed at an almost two-month low of 1,002.25 on July 1.

It has since wiped out almost all of that loss amid improved economic-growth measures before the Fed announces its next policy decision on July 30.

The euro fell as the Ifo institute’s German business climate index, based on a survey of 7,000 executives, fell to 108 from 109.7 in June, marking the third straight monthly decline. Economists predicted a reading of 109.4, according to the median estimate in a Bloomberg News survey.

“The macro story is still supportive” of a dollar rally in the second half of the year, Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York, wrote today in a note to clients. “We look for the USD to gather momentum once we hit September.”

The U.S. currency will strengthen to $1.32 per euro and 105 yen by year-end, according to the median estimate of analysts compiled by Bloomberg.

The dollar has appreciated 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed nation currencies. The yen climbed 1 percent, while the euro weakened 0.6 percent.

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