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Dollar rallies on US data, Greek debt worries

Arnd Wiegmann | Reuters

The U.S. dollar advanced against major currencies on Monday after stronger-than-expected data on U.S. manufacturing activity and construction spending, while mounting worries of a Greek default contributed to the euro's weakness.

Reports on Monday showed U.S. manufacturing activity picked up in May and construction spending surged in April to a nearly 6-1/2-year high. The data bolstered optimism about the health of the U.S. economy and raised confidence that the Federal Reserve will hike interest rates this year.

"It's a sigh of relief both to the point that the U.S. economy is clearly picking up growth and that the stronger dollar doesn't seem to be having much of a negative impact on manufacturing," said Boris Schlossberg, managing director at BK Asset Management in New York.

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"It strengthens the case for a September (rate) hike," he said. The Fed's first rate increase in nearly a decade is expected to boost the dollar by driving investment flows into the United States.

Worries about Greece weighed on the euro after the country missed a self-imposed Sunday deadline for reaching an agreement with its lenders to unlock aid. The nation faces a payment to the International Monetary Fund on Friday and the expiration of its bailout program on June 30.

"Greece worries are there," said Richard Franulovich, senior currency strategist at Westpac in New York. "A country could potentially miss a payment to the IMF, which would be the first time it has happened in its 70-year history."

The euro last traded down 0.53 percent against the greenback at $1.0929, retreating from Friday's one-week high of $1.1006. The dollar hit a session high against the Japanese yen of 124.88 yen, a new multi-year high, before trading at 124.80.

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The U.S. data strengthened the case for tighter Fed policy, thereby underscoring the divergence between the U.S. central bank and the Bank of Japan's ultra-loose monetary policy, BK's Schlossberg said.

Schlossberg said the dollar would probably shoot higher against the yen if it crosses the 125 yen mark, since traders who had bet against the U.S. currency against its Japanese counterpart would have to repurchase the greenback to cover their bets.

The dollar was last up 0.56 percent against the at 0.9454 franc.