Dollar Rises for Third Day as China GDP Beats Expectations

  • Probability the Fed will boost rates by December rises to 32%
  • Dollar will still be in `a period of consolidation,' ANZ says

The dollar rose for a third day against major peers after China’s economy expanded more quickly than economists forecast in the third quarter.

The Bloomberg Dollar Spot Index extended an advance from the end of last week, when there were signs a robust U.S. economy will keep the Federal Reserve on course to tighten monetary policy for the first time since 2006. The euro fell for a third day even as European Central Bank Governing Council member Ewald Nowotny signaled in an interview with Puls Biznesu that policy makers may not decide any time soon whether to extend quantitative easing beyond September 2016.

“The number was better than expected but it did suggest that Chinese economic activity is slowing, just not at the worrisome pace that the market initially anticipated,” said Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia. “Any relief rally in the Australian dollar or the commodity complex in general should be limited because the fundamentals haven’t changed.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major counterparts, rose 0.1 percent to 1,190.91 as of 6:35 a.m. in New York.

The greenback was little changed at 119.47 yen and advanced 0.3 percent to $1.1316 per euro. Australia’s dollar rose 0.4 percent to 72.93 U.S. cents.

China’s gross domestic product rose 6.9 percent in the three months through September from a year earlier, the National Bureau of Statistics said Monday, beating economists’ estimates for 6.8 percent. Still, that was the slowest quarterly expansion since the first three months of 2009, based off previously announced data.

The less severe slowdown in Chinese economic activity is “certainly encouraging” and should allow the Fed to start raising interest rates later this year, Commonwealth Bank of Australia’s Haddad said.

Fed officials opted in September to leave their benchmark interest rate near zero, where it’s been since 2008. Minutes of that meeting showed policy makers felt China’s slowdown raised risks to their outlook for growth and inflation in the U.S.

The probability the Fed will increase rates by its December meeting rose to 32 percent, from 27 percent on Oct. 14, according to futures data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.

“For the U.S. dollar, we’re still going to be in a period of consolidation,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Should you start to see the U.S. data continuing to be solid, particularly now with emerging markets finding a more stable footing, we might see the dollar starting to regain its poise if the market starts to price in some expectation that the Fed could still go in December.”

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