Dollar Gains as U.S. Growth and Jobs Data Boost Economic Outlook

August 27, 2015 Bloomberg

By Lananh Nguyen

The dollar rose to a one-week high as U.S. growth and employment readings fueled optimism about the economy.

The currency climbed for a third day as stocks rallied after a report showed U.S. gross domestic product rose at a 3.7 percent annualized rate, exceeding all estimates of economists surveyed by Bloomberg and up from the 2.3 percent reported last month. Filings for jobless benefits dropped to a three-week low.

“What we’re seeing is a slew of positive data” that support the greenback, said Stephen Casey, a New York-based senior foreign-exchange trader at Cambridge Global Payments, a currency and payments provider. “I still envision the dollar trending higher.”

The U.S. currency climbed 0.5 percent to $1.1259 against the euro and advanced 0.8 percent to 120.85 yen at 3:30 p.m. in New York. The Bloomberg Dollar Spot Index gained 0.2 percent to 1,204.96, the highest in a week on a closing basis.

Traders are pricing in a 30 percent probability that the Federal Reserve will raise interest rates at its September meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That’s up from 24 percent Wednesday but down from 48 percent on Aug. 18.

‘Really Cautious’

Kansas City Federal Reserve President Esther George said it’s too soon to tell whether market volatility will affect the U.S. economy, and every policy-setting meeting is a live option for the Fed to start raising rates.

“At this point, for me, I have not seen something that would change my own sense of how the economy is doing,” George said, speaking with Bloomberg Television from Jackson Hole, Wyoming, where the central bank’s annual retreat gets under way Thursday night. “I thought there was scope to consider rate increases before now, but we’ll wait and see what the committee’s thoughts are.”

The greenback’s gains were muted by uncertainty across financial markets, after a selloff erased $8 trillion from the value of global equities in two weeks, according to Joe O’Leary, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California.

“In normal market conditions we’d have seen a much bigger jump in the dollar, but now people are just really cautious,” O’Leary said. The growth data “gives the Fed more ammunition for a rate hike at some point in time, but there’s still too much volatility for them to do it in September.”

Unemployment applications dropped by 6,000 to 271,000 in the week ended Aug. 22, a Labor Department report showed Thursday.

The GDP reading is “a very good number and is clearly U.S. dollar-positive, especially if sentiment remains constructive,” Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam, said by e-mail.

Read the full article here: http://www.bloomberg.com/news/articles/2015-08-27/dollar-rises-as-u-s-growth-beats-estimates-jobless-claims-fall