Dollar Strengthens on U.S. Economic Data
Federal Reserve is expected to raise interest rates in December
By James Ramage
The dollar edged higher against the euro and the yen on Wednesday as a raft of U.S. economic data mostly upheld expectations for the Federal Reserve to lift interest rates next month.
The greenback pared early morning gains, though, as numbers showed U.S. consumers are less confident and holding back on spending, factors that are expected to weaken growth over the final there months of 2015.
The Wall Street Journal Dollar Index, which compares the greenback against a group of 16 commonly traded currencies, increased 0.1% to 90.43. The dollar inched up 0.2% versus the common currency, as one euro bought $1.0617 in late-afternoon trade, on pace for its weakest New-York close against the greenback since April 13. The dollar rose 0.2% versus the yen to ¥122.73.
The dollar rose Wednesday morning after data showed that fewer Americans filed for unemployment benefits last week, the Labor Department said, pointing to a strengthening employment picture. In addition, stronger-than-expected durable-goods orders for October signaled increased demand for manufactured products, the Commerce Department said.
But the dollar pared gains on softer-than-expected numbers for consumer spending and confidence. The University of Michigan’s final consumer sentiment index for Novemberfell from an earlier reading, and U.S. consumer spending grew just 0.1% last month, below economists’ expectations, the Commerce Department said.
Still, investors predict that it would take exceptionally weak U.S. economic numbers for the Fed to delay raising interest rates in December, said Scott Smith, senior market analyst with Cambridge Global Payments, which facilitates currency hedging and payments for corporations. Higher interest rates will make the dollar more attractive to yield-seeking investors.
“Today’s data probably won’t lead to a reassessment of expectations for the trajectory of interest rates,” Mr. Smith said. “We expect the dollar to grind higher into the Fed meeting. But we could see some dollar weakness afterward if the Fed communicates a slow path for rates.”
Fed-funds futures, which investors and traders use to wager on central-bank policy, showed a 78% likelihood of a rate increase at the December Fed meeting, compared with 52% one month earlier, according to data from CME Group Inc.
Investors are awaiting next week’s data on U.S. nonfarm payrolls and comments by Fed Chairwoman Janet Yellen, Mr. Smith said, which are likely to provide more clarity on interest rates and direction for the dollar.
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