Dollar Posts Longest Winning Streak Since 2012 as Fed Hike Seen

  • U.S. currency advances for 8th straight day versus euro
  • Broad gauge of greenback advances to highest in nine months

What's Driving U.S. Dollar Strength?

The dollar extended its winning streak against the euro to the longest since 2012 as forecasts for stronger U.S. economic data added to the momentum triggered by Donald Trump’s victory in the presidential election.

A broad gauge of the U.S. currency reached the highest since February as Federal Reserve Bank of St. Louis President James Bullard said the economy may get a medium-term boost from Trump’s policies. The greenback has been buoyed since the Nov. 8 vote by speculation the Republican’s proposals to increase spending and cut taxes will spur growth and inflation, nudging the central bank toward raising interest rates.

Data Wednesday showing U.S. manufacturing increased for a second month helped drive the market-implied probability of a Fed hike in December to 94 percent. While some analysts warned that further increases in the dollar may be limited before Fed Chair Janet Yellen’s testimony Thursday, others see more scope for further dollar strength.

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“There’s still another couple of percent or so of room to go in the broad dollar index,” said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal. “I’m not necessarily expecting that to turn into a 15-day run, but when we talk again on Dec. 16, right after the Fed has raised rates, we’d be looking at the euro below $1.05.”

The U.S. currency appreciated 0.3 percent to $1.0691 per euro as of 5 p.m. in New York, gaining for an eighth straight day. It touched $1.0666, the strongest since December. It traded at 109.06 yen after reaching the strongest since June.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2 percent, after touching the highest since February. The gain built on a 2.8 percent surge last week, the most since 2011. This week, the index erased its decline this year, leaving it up about 0.5 percent in 2016.

New Highs

Output at U.S. factories climbed for a second month in October, a Fed report showed Wednesday. A report Tuesday showing a 0.8 percent rise in retail sales in October followed an upwardly revised 1 percent jump the prior month, for the biggest back-to-back increase since 2014.

Bullard on Wednesday highlighted two policies that may support growth: a “targeted fiscal infrastructure package aimed at increasing U.S. productivity growth,” and tax changes to allow repatriation of corporate profits to lift investment. The impact on the economy would probably come in 2018, 2019 and 2020, he said.

“We’ve definitely gone very far, very fast,” said Brad Bechtel, a currency strategist at Jefferies Group LLC in New York. While there is potential for the dollar to advance further heading into the U.S. rates decision, “the Fed might try to calm that trade down a bit and their dovishness will likely take the steam out of the trade.”

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