US Dollar index on track for monthly gains, bolstered by Fed expectations
Frankfurt (May 29) The dollar index rose on Friday, resuming its recent streak of monthly gains after a break in April, with investors likely to look past soft first-quarter U.S. growth numbers after recent activity data pointed to a more sustained recovery.
That along with higher core inflation have kept alive expectations that the Federal Reserve would lift interest rates later this year.
Later in the day, revised gross domestic product data is expected to underscore the U.S. economy stalled in the first quarter of the year.
But data on Thursday, particularly upbeat home sales, reinforced the view the economy was recovering from weather-related problems in the first quarter and the Fed was still in track to raise rates, boosting the dollar.
Traders said the Chicago Purchasing managers' index for May and the final University of Michigan consumer sentiment for May could print above consensus and boost the dollar.
The dollar index was up 0.2 percent at 97.132, with the greenback gaining against the euro, the British pound and holding its ground against the yen. The index was up 2.5 percent, having shed 3.8 percent in April.
"Unless the growth data is revised to show a contraction of 1 percent, the market will not be too surprised," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "Any dip in the dollar will be a good entry level to go long, given we are still expecting some good payrolls numbers next week."
Stretch expected the dollar to rise towards 125 yen in coming days, although a flurry of comments from Japanese policymakers made investors cautious.
Traders cited a warning from Japanese Finance Minister Taro Aso as a factor behind the dollar's move away from Thursday's high of 124.46 yen. That was a 12-1/2 year peak for the dollar and was last trading at 123.90, flat on the day.
"The current yen weakening in the past few days has been rough. I will closely monitor market moves," Aso told reporters on the sidelines of a gathering of finance ministers and central bank chiefs of G7 countries in Dresden, Germany.
But Japanese Economics Minister Akira Amari said on Friday the pace of yen declines could not necessarily be described as excessive.
Meanwhile, the euro edged down to $1.0940, with investors on the sidelines amid worries about Greece. At the Dresden meeting, the head of the International Monetary Fund warned Greece could fall out of the euro zone as it struggled to sort out its debt problems.
Meanwhile, the New Zealand dollar fell to $0.7118, its lowest since Sept 2010 after a survey showed business confidence tumbling and adding to speculation of a rate cut as early as June.
Source: CNBC
