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London - The dollar climbed against most of its major counterparts as traders
increased expectations for tighter Federal Reserve policy after two
regional central bank presidents made cases for an interest-rate
increase.
Boston Fed President Eric Rosengren and the Kansas City
Fed’s Esther George, both voters on the Federal Open Market Committee
this year, said on Thursday that the central bank risks stoking an asset
bubble by delaying action for too long. They are usually on opposing
sides of the policy debate.
Prospects that US rates will rise
are supporting the greenback. The Bloomberg Dollar Spot Index, which
tracks the currency versus 10 major peers, is set to complete a two-week
advance of 2%, the biggest jump for such a period in almost a year.
Traders
have pushed the yield gap between the two-year and 10-year US Treasury
notes to the narrowest in more than two months, while futures indicate
53% odds of an increase this year - up from 45% at the start of the
week. The next Fed policy meeting is June 14-15.
“The compression
in 2-10 year notes in the US is reflective of repricing of US rate
expectations, which favors the dollar across the board,” said Jeremy
Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of
Commerce in London.
“The Fed rhetoric yesterday was significant,
especially if backed up by strong retail sales today. Is June going to
see a hike? Unlikely. Is the market too relaxed about the rest of the
year? Certainly.”
The dollar strengthened 0.3% to $1.1346 per
euro as of 11:45. The greenback appreciated 0.6% to 72.83 cents against
the Australian dollar and 0.3% to 67.99c versus its New Zealand
counterpart.
Retail sales
Data due later
on Friday are forecast to show US retail sales rose 0.8% in April after
falling the previous month, according to analysts surveyed by Bloomberg.
The Bloomberg Dollar Spot Index has dropped about 4% this year
as traders reduced wagers the Fed would raise rates amid weaker economic
data and signs of growth slowing globally.
Reports last week showed US employers added 160 000 jobs in April, compared to forecasts for a 200 000 gain.
The
Fed probably will raise interest rates twice this year, after making
its first increase in almost a decade in December, according to
Macquarie Bank.
The dollar is set to climb to ¥112 in three
months, said Nizam Idris, the bank’s Singapore-based head of strategy
for fixed income and currencies.
“The fact that the fed fund
futures are hardly pricing in any hike throughout this year has to be a
dollar-positive in my view,” said Nizam.
