Dollar Climbs to 7-Week High as Data Surprises Renew Fed Wagers

Updated on
  • Rate-hike expectations seen supporting greenback: Commerzbank
  • Bloomberg’s dollar index holds three-day, 1 percent advance

Is Dollar's Good Fortune Set to Continue?

A gauge of the dollar climbed to its highest since early June as economic data in the U.S. suggested the world’s biggest economy is set to continue expanding, renewing speculation that the Federal Reserve will raise interest rates by the end of the year.

The Bloomberg Dollar Spot Index set a seven-week high as new-home construction in the U.S. rose more than forecast, adding to the slew of recent reports signaling growth. Citigroup Inc.’s U.S. Economic Surprise Index, which measures whether data beat or missed forecasts, rose to the highest since January 2015 following reports showing stronger payrolls and retail sales.

“The market will recalibrate on Fed rate-hike expectations to price in at least one” this year, said Charlie Lay, a foreign-exchange strategist in Singapore at Commerzbank AG. “That should support the dollar.”

Bloomberg’s dollar index, which tracks the currency against 10 major peers, climbed 0.1 percent as of 7:24 a.m. Wednesday in New York, having rising to the highest since June 1 earlier, and extending a three-day gain.

Traders are reviving wagers that the Fed is back on track to raise interest rates, after the U.K.’s vote to leave the European Union slashed such probability to less than 10 percent. Futures prices indicate a 43 percent chance of a rate hike by December, boosting the dollar’s relative allure.

IMF Outlook

The International Monetary Fund retained its outlook for the U.S. to expand 2.2 percent this year, while scrapping its forecast for a pickup in global growth in the wake of the British referendum, according to the fund’s quarterly World Economic Outlook released Tuesday in Washington.

“There’s certainly a growing crowd of investors that are warming up to the notion that the abundance of strong U.S. economic data may light a fire under the Fed and lead to a surprise rate hike by year-end,” Stephen Innes, a senior trader at Oanda Corp. in Singapore, said in an e-mailed note.