Dollar advances on stronger stocks, China data

NEW YORK: The dollar climbed to a two-week peak against the euro on Wednesday, as gains in global stock markets and improved data out of China drew investors into riskier bets than low-yielding currencies in Europe and Japan.

The euro and yen have gained strongly against the dollar in recent weeks as investors sought traditional safe havens for their money on a darkening outlook for banks and economic growth, underlined again by downgraded forecasts from the International Monetary on Tuesday.

Softer-than-expected U.S. producer prices and retail sales numbers last month briefly pushed the dollar lower, but Wednesday’s dollar uptrend remained intact.

“The weak retail sales and PPI (producer price index) data had virtually no impact on the dollar, and it’s probably because that there are portfolio flows going into U.S. equities,” said Sebastien Galy, currency strategist at Deutsche Bank in New York. “This is giving the dollar a bit of a bid.”

Still the outlook for the dollar stayed weak. After gaining steadily for 1-1/2 years amid U.S. interest rate hike expectations, the dollar has hit a wall and many in the market believes that the greenback’s long-term rally is near its end.

Expectations of a deal to stabilize oil output, and what seems like a bottoming out of expectations for U.S. interest rate rises, have also helped the dollar. It rose 0.5 percent to 109.08 yen, up from lows of 107.61 hit on Monday.

“The expectation for Fed rate hikes is incredibly low,” said Deutsche’s Galy. “It doesn’t take much to push them higher.”

The euro fell 0.9 percent against the dollar to $1.1278 . It fell as low as $1.1274, a two-week low.

“Obviously when sentiment is better and (interest rate) carry trades are put in place you should see the euro and yen weaken,” said Sanjiv Shah, Chief Investment Officer with London-based Sun Global Investments.

“The yen may weaken from here. But whether that translates into dollar strength I don’t know. We have just started the results season and it is looking like quite a bad quarter. The futures market does not believe that there will be more than one rise in U.S. rates this year.”

On the day, oil was down more than 1 percent and the boost for commodity-reliant currencies from Tuesday’s jump faded in morning trade in Europe. The Norwegian crown and Australian dollar.

Crude, however, remains well above $40 a barrel, which has allowed all three currencies to recover from long-term lows hit in January.

The dollar index was up 0.8 percent at 94.705, gaining for the first time in four days.

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