Analysis / Daily / Finance / forex

Dollar Bolstered by U.S. Rate Rise Hope

One Pound

The pound edged lower against the dollar on Friday, pulling away from two-week highs hit earlier in the week, as upbeat U.S. economic data added to expectations for an interest rate hike this fall. GBP/USD hit highs of 1.5676 on Wednesday, the most since July 1, before subsequently consolidating at 1.5602 by late Friday, down 0.05% for the day but 0.53% higher on the week. Demand for the pound continued to be underpinned after Bank of England Governor Mark Carney said earlier in the week that the time for the bank to raise rates from record lows is moving closer. Sterling rallied to an eight-year high against the euro due to the diverging monetary policy stance between the Bank of England and the European Central Bank.

euro

The euro has held steady at $1.08240. Earlier, it hit a two-month low at $1.08205. A drop below its May low of $1.0819 would take the euro to its lowest level since late April. The single currency has struggled even though worries about Greece exiting the euro zone have waned, at least for the time being, after Athens agreed to a debt deal with its creditors last week. The euro has come under renewed pressure while the dollar has gained broadly, as investors shifted their focus back to the diverging outlook for monetary policies and interest rates among major economies. Greek banks are ready to open their branches across the country on Monday after a three-week shutdown, officials said, while German Chancellor Angela Merkel called for swift aid talks so Athens could also lift withdrawal limits.

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The dollar has hit a three-month high against a basket of major currencies today,after solid U.S. inflation and housing data supported expectations for the Federal Reserve to raise interest rates in coming months. The greenback is coming off its best weekly performance in about two months, having risen last week after Fed Chair Janet Yellen reiterated that U.S. interest rates will probably be lifted later in the year. The dollar gained further support from data on Friday that showed U.S. consumer prices rose for a fifth straight month in June, while housing starts jumped and building permits surged to an eight-year high. Against a basket of six major currencies, the dollar traded at 98.041 at 0405 GMT. It rose to 98.061 at one point, its strongest level since April 23. The dollar index rose 1.9 percent last week, its best weekly gain since May.

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