Dollar surges as US data backs December rate hike view

The dollar registered on Friday its best weekly performance in more than seven months after strong U.S. retail sales and producer prices data for September reinforced expectations the Federal Reserve would raise interest rates in December.

The U.S. currency briefly trimmed gains versus the Japanese yen and euro after Fed Chair Janet Yellen said the U.S. central bank might need to run a “high-pressure” economy to reverse damage from the last financial crisis.

Her view of the economy did not alter expectations for a December rate hike, analysts said.

“Yellen’s comments were more about the Fed looking down the road, and her concerns about the last financial crisis shed light on why the Fed has been so hesitant to raise interest rates,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.4 percent to 97.935. It was up 1.4 percent for the week and 2.5 percent for the month so far.

The safe-haven yen and Swiss franc fell versus the dollar after risk sentiment got a boost from Chinese data showing producer prices rose for the first time in nearly five years. That boded well for the global economy which has been battling the threat of deflation in recent months.

The U.S. retail sales data, which showed a 0.6 percent rise last month after declining 0.2 percent in August, supported the dollar’s gains. Other data on Friday suggested a pickup in inflation, with producer prices rising broadly last month to record their biggest year-on-year increase since December 2014.

The minutes of the latest Fed meeting in September, released on Wednesday, prompted investors to raise their bets of a U.S. rate increase in December, to a 70 percent chance.

Against the yen, the dollar rose 0.3 percent to 104.03. It was up 1.2 percent for the week.

The euro fell 0.6 percent to $1.0992, after earlier hitting $1.0983, its weakest level since late July. It was down 1.6 percent for the week, its worst weekly performance since late February.

Source: Reuters