Dollar Pares Best Monthly Gain Since January 2015 as Fed Looms

  • Gauge of greenback versus peers climbs 3 percent this month
  • Doubts about June hike holding back dollar: Rabobank’s Foley

Has the U.S. Dollar Moved Too Far, Too Fast?

The dollar pared its biggest gain since early 2015 as traders considered whether the Federal Reserve will really raise interest rates in June or July.

The Bloomberg Dollar Spot Index tracking the greenback versus its major peers fell for a second day after reaching a two-month high earlier in the week. Data forecast to show slowing growth in durable-goods orders also weighed on the U.S. currency. Still, many see the decline as more of a hiccup.

“We still expect the Fed to raise interest rates in June, though some are not convinced this will happen and that’s holding the dollar back,” said Jane Foley, a London-based senior currency strategist at Rabobank International. “The dollar overall remains in an uptrend. Even if the Fed decides not to move in June, the U.S. remains the only country in the Group of 10 whose economy is strong enough to warrant rate increases.”

The index of the dollar versus 10 peers slipped 0.2 percent as of 7 a.m. in New York, extending yesterday’s decline. The euro climbed 0.2 percent to $1.1179, rebounding from a two-month low, while the yen strengthened 0.2 percent to 110 to the greenback.

Norway’s krone was the biggest G-10 gainer, climbing 0.8 percent to 8.29 per dollar as Brent oil prices surpassed $50 a barrel for the first time since November.

The dollar gauge is still up 3 percent this month after the odds of a Fed rate increase in June jumped almost three-fold to 34 percent. Officials including the presidents of the Fed’s regional arms in San Francisco, Boston and Philadelphia voiced their support for higher rates.

For a story on how the dollar is key to prospects for a U.S. rate rise, click here.

While the dollar gauge has advanced for the past three weeks, caution reigns after policy makers’ pro-tightening comments earlier this year quickly gave way to rhetoric on slowing U.S. growth. The data on Thursday will show durable goods orders rose 0.5 percent in April after 1.3 percent growth the month before, according to economists surveyed by Bloomberg.

Hedge funds and other large speculators are the most neutral on the U.S. currency in two years. They reduced wagers against the dollar to a net 10,653 contracts in the most recent data -- the smallest bet on greenback strength or weakness since June 2014.

Watch next: The Fed Will Hike by July, Says Foenix's De Meo

“I would chalk it up to a pause -- month-end is right around the corner,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. “The dollar certainly is on a rosier path given that we’ve seen bullish data and hawkish commentary from a series of Fed officials.”

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