The US dollar posted its biggest weekly advance since last month amid a growing conviction that US economic growth would prompt an interest-rate increase from the US Federal Reserve this year.
The US currency gained for the first time in four weeks versus the euro as investors, speculating that an 11th-hour deal would be reached on Greek aid, turned their attention to monetary policy and the economy. A report showed that consumer sentiment last month reached a five-month high.
“It will be the growth and monetary policy story that drives the dollar higher,” Shaun Osborne, head of global foreign-exchange strategy at Toronto-Dominion Bank, said by phone. “We’ve had a run of fairly decent data in the US, which suggest that the second-quarter growth profile is looking remarkably better.”
The Bloomberg Dollar Spot Index climbed 1.1 percent this week to 1,180.11 as of 5pm in New York, the biggest gain since May 22.
The US dollar strengthened 1.6 percent to US$1.1167 per euro and climbed 0.9 percent in the week to ￥123.85.
“Once you take out the Greek headlines and ask where is the US compared to Europe in terms of economic standing, I wouldn’t be surprised if euro-dollar trades closer to US$1.10 again,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California.
Fed policymakers have stressed that the timing of the first rate increase since 2006 will depend on the economy.
Bloomberg’s US economic surprise index climbed to minus 0.52 on Thursday, showing that while data are still falling short of strategists’ estimates, they are improving.
Futures show a 38 percent chance the Fed would increase its benchmark rate from near zero by September, and a 73 percent probability of an increase by December, according to data compiled by Bloomberg.
Europe’s single currency weakened on Friday before finance chiefs reconvene at the weekend for their fifth session on Greece in just over a week.
Meanwhile, the pound’s advance to a one-month high against the euro this week owed as much to the performance of Britain’s economy as to demand for a refuge from Greece’s debt talks. Data next week may give sterling bulls another boost.
The UK currency ended a week dominated by negotiations aimed at keeping Greece in the euro area with gains versus most of its major peers.
Cementing demand for the pound was an increase in 10-year government bonds yields to the highest since November. They are rising on speculation an improving outlook for the economy is pushing the Bank of England closer toward raising interest rates.
The pound advanced 0.9 percent in the week to ￡0.7088 per euro as of 5pm in London on Friday, posting its third weekly gain. It touched ￡0.7075 on Friday, the strongest level since May 27. Sterling was at US$1.5739, a drop of 0.9 percent on the week.
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