Dollar Holds Near Six-Week High Spurred by Optimism Over Economy

  • Strategists becoming more confident of Fed rate boost in 2016
  • They’re awaiting minutes of Fed’s April meeting due Wednesday

The dollar held near a six-week high versus its major peers as improved economic data in the U.S. prompted speculation that a boost to interest rates this year, and possibly even as soon as next month, just became more likely.

The greenback rose against the yen after a report Friday showed the biggest increase in U.S. consumer spending in a year. While the odds of a rate increase priced in the futures market didn’t budge from 4 percent for June and 53 percent for December, investors will scour the minutes of the Federal Reserve’s latest meeting, due Wednesday, for clues on the policy path.

“Domestic data seem to hold up very well,” which should keep rate bets elevated, said Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment-banking unit in London, who expects the central bank to move in July.

Events such as the U.K.’s referendum on European Union membership and lingering concerns China is heading for a sharp slowdown mean few are willing to anticipate a June rate increase, though “the latest data isn’t leaving any room for rate expectations to fall either,” Oliveri said.

The Bloomberg Dollar Spot Index, which measures the U.S. currency against 10 peers, was little changed at 7:13 a.m. in New York, after a 2.3 percent, two-week advance that took it Friday to its highest level since April 6.

The yen weakened 0.2 percent to 108.89 per dollar, extending two weeks of declines, while the euro rose 0.1 percent to $1.1321, after dropping Friday to the lowest this month.

Hedge funds reduced bets for the dollar to weaken versus eight other currencies last week, according to the Commodity Futures Trading Commission in Washington. So-called net shorts almost halved to 37,321 in the week ended May 10. A week earlier, short wagers reached a two-year high after speculators switched in April to betting on dollar declines.

Futures traders see a 4 percent chance the Fed will raise rates from the current range of 0.25 percent to 0.5 percent in June, and a 53 percent probability of an increase before 2016 is out. At the start of the year, the odds of a move by December were 93 percent.

A Fed repricing should mean a higher dollar, though “it obviously won’t be as strong as it was before, because markets will be much more hesitant to go ahead of the Fed this time,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand in Auckland.

Before it's here, it's on the Bloomberg Terminal.