Dollar touches two-week high on upbeat US data

The U.S. dollar has regained some strength in recent weeks.
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The U.S. dollar has regained some strength in recent weeks.

The dollar climbed to a two-week high against a basket of currencies on Friday, as stronger-than-expected U.S. economic data appeared to boost expectations the Federal Reserve may raise interest rates more than once this year.

The move was the best two week-gain for the dollar since late February. The greenback also rose for a second straight session versus the yen, while touching a two-week high against the euro.

Data on Friday showed U.S. retail sales gained 1.3 percent in April, the largest rise in more than a year, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.

"In response to this (retail sales) number, markets appear to have concluded that the dollar sell-off through the early part of the year was overdone and consensus is now turning toward a resumption of the Federal Reserve's tightening cycle in the autumn," said Karl Schamotta, head of enterprise risk management at Cambridge Global Payments in Toronto.

The greenback suffered a sharp sell-off in the first four months of 2016, hitting a 16-month low, as market expectations of at least two Fed rate hikes this year faded amid fears about a global economic slowdown and financial market turbulence.

With those concerns having subsided somewhat, some analysts say there are signs the tide could be turning for the dollar and that investors, who now see about a 60 percent chance of a Fed hike this year, may have pushed back their expectations too far.

Others reckoned, however, the dollar's recent correction — it has risen 3 percent against a basket of currencies in the last 10 days — will be short-lived.

In late-morning trading, the dollar index rose 0.5 percent to 94.61. It also got a boost after the University of Michigan's consumer sentiment index rose to 95.8 this month, the highest level since June 2015, from April's reading of 89.

Following the consumer sentiment data, the euro fell further to $1.1305, down 0.62 percent. The euro shrugged off data showing euro zone GDP grew by 0.5 percent in the first quarter, in a downward revision of an earlier estimate.

Against the yen, the dollar fell 0.3 percent to 108.62 yen, well clear of an 18-month low of 105.55 hit last week after the Bank of Japan kept monetary policy unchanged.