Dollar Snaps Three-Day Loss as Data Boost U.S. Economic Outlook

  • Retail sales, manufacturing reports give Fed scope to tighten
  • Yen rises on haven demand as Turkish army says it siezed power

The dollar snapped a three-day decline as U.S. economic reports, including retail sales data, boosted the outlook for the economy.

The currency rose against most of its major peers after reports showed sales at U.S. retailers rose more than forecast last month, while industrial production posted the strongest advance since January. Improving growth prospects help to bolster the case for the Federal Reserve to raise interest rates some time this year, with traders pricing in higher odds of a hike Friday after the figures were released. The greenback also strengthened alongside the yen as investors sought haven assets after Turkey’s army said it seized power.

“The U.S. economy remains the rock in a sea of troubles, with enough momentum behind it to unhook itself from global uncertainties,” said Karl Schamotta, director of foreign-exchange research and strategy at Cambridge Global Payments in Toronto, which hedges currencies for companies. The prospect of higher U.S. borrowing costs will probably trigger another bout of dollar strength, he said.

More scope for the Fed to raise rates rekindles speculation of increased dollar allure based on tighter monetary policy in the U.S. while central banks in Europe and Asia add to stimulus. That sentiment fueled a 20 percent gain the dollar the past two years before the greenback slumped this year as the outlook for divergence dwindled.

The Bloomberg Dollar Spot Index rose 0.4 percent as of 5 p.m. in New York, halting a three-day decline. The dollar gained 0.8 percent to $1.1035 per euro.

The yen and greenback climbed late Friday amid reports that warplanes flew over the Turkish capital and tanks blocked roads in Istanbul. Prime Minister Binali Yildirim said his government is still in control and will resist.

The yen gained 0.5 percent to 104.88 per dollar, paring its weekly loss to 4.3 percent.

“The safe haven currencies are performing for now and that includes the yen and gold” as well as the dollar, Bipan Rai, senior foreign exchange and macro strategist at Canadian Imperial of Commerce in Toronto, said by e-mail. “We’re seeing emerging-market currencies come off a bit on the news -- led by the lira. It certainly doesn’t help that this is happening at an illiquid time of the week.”

Hedge funds and other money managers boosted net bullish futures bets on the dollar for the first time in three weeks, according to data from the Commodity Futures Trading Commission. Net long positions outnumbered bearish wagers by 96,234 contracts, compared with 81,952 a week earlier, the data showed.

Traders see a 38 percent probability the U.S. central bank will raise interest rates by year-end, up from 35 percent Thursday, as the economy shows signs of resilience.

“This data pretty is solid” and will probably keep the dollar supported, said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “The market is very complacent on the Fed.”

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