Dollar Climbs Most Since December as U.S. Growth Tops Forecast

  • U.S. currency extends longest run of gains versus yen in month
  • Economy grew at 1 percent annualized rate in fourth quarter

The dollar rallied the most in two months after a series of better-than-forecast economic reports boosted the outlook for U.S. growth.

The greenback rose for a third day versus the yen, its longest winning streak in almost a month, as a revised reading of gross domestic product last quarter showed the economy grew at a 1 percent annualized rate, compared with an initial estimate of 0.7 percent. Consumer purchases climbed in January by the most in eight months and a measure of inflation advanced the most since October 2014.

The reports helped offset a rising clamor of concern that U.S. growth risks being dragged down by China’s slowdown and stagnant inflation in the euro area and Japan. Traders have pushed out expectations for interest-rate increases from the Federal Reserve as a result, and a Bloomberg gauge of the dollar remains poised for its biggest monthly loss since April 2015. Hedge funds cut their bets on the dollar to the least since July 2014 in the week through Feb. 23.

“The discrepancy between the Fed’s outlook and what the market is pricing in is looking even more unrealistic,” said Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets. “It’s going to be good for the dollar, certainly against high-beta currencies.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 peers, rose 0.7 percent to 1,231.01 as of 5 p.m. in New York, the biggest gain since Dec. 17.

The dollar advanced 0.9 percent to 114 yen, capping its best week since the period ending Jan. 29. The greenback added 0.8 percent to $1.0934 per euro.

Data Sensitive

The Fed is scrutinizing incoming data for signs the economy can withstand another interest-rate increase after policy makers hiked rates for the first time in almost a decade in December.

Traders are pricing in a 53 percent likelihood of an increase by year-end, down from 93 percent on Dec. 31, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase.

“Anything that gives affirmation that the Fed will continue the course to raise short-term interest rates on a measured path probably is strong for the dollar,” said Roger Bayston, a director at Franklin Templeton’s fixed-income group in San Mateo, California, which has $153 billion under management. The GDP report was “not too hot and not too cold really, by and large, and certainly not cold enough to merit some of the recession fears.”

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