Dollar Builds on Gains, Rises to 1-1/2-Month Highs
The dollar built on early gains against a currency basket on Wednesday, rising to a one-and-a-half month high as expectations for faster hikes in U.S. interest rates remained intact despite a raft of soft U.S. economic data.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.31% to 90.60 by 10:44 AM ET (15:44 GMT), the highest level since Jan. 18.
Demand for the dollar continued to be underpinned after Federal Reserve Chairman Jerome Powell said the U.S. economic outlook remains bright, bolstering bets on further Fed rate hikes this year.
Speaking before Congress on Tuesday, Powell said the Fed remains on track to gradually raise rates to keep the economy on an even keel amid strengthening growth and inflation.
The remarks bolstered expectations that the U.S. central bank may deliver four rate increases this year, rather than the three it had earlier signaled. Markets expect the first rate hike to come in March.
Expectations of rising borrowing costs tend to buoy the dollar, as higher rates make the U.S. currency more attractive to yield-seeking investors.
The dollar shrugged off data showing that U.S. fourth quarter growth was revised down to 2.5% from the previously reported 2.6% pace, as inventory growth was revised lower. The 3.8% increase in consumer spending in the period was unchanged.
Another report showed that U.S. pending home sales fell 4.7% in January, in what was the largest decline in three years.
The euro extended losses against the dollar, with EUR/USD down 0.34% to 1.2190, the lowest level since January 18.
Against the yen, the dollar was lower, with USD/JPY losing 0.36% to trade at 106.95.
The yen had strengthened overnight after the Bank of Japan trimmed bond purchases, reviving speculation that it is moving closer to an exit from its massive stimulus program.
BoJ officials have said adjustments to debt purchasing operations are not meant as hints at future monetary policy.
The euro fell to its weakest level in five months against the stronger yen, with EUR/JPY slumping 0.69% to 130.39.
Meanwhile, sterling was lower against the firmer dollar, with GBP/USD dropping 0.88% to 1.3785 as renewed concerns over Brexit weighed after the European Union published draft plans which would keep Northern Ireland in the customs union