By James Ramage
The dollar strengthened against rival currencies Friday,
including reaching a new two-year high against the euro, as the
U.S. currency continues to benefit from signals from the Federal
Reserve regarding raising interest rates next year.
The euro fell 0.4% to $1.2233 in late-afternoon trade, the
weakest it has been since Aug. 3, 2012. The dollar climbed 0.6%
versus the yen to 119.49 yen, the highest in more than a week. The
WSJ Dollar Index, which measures the dollar against a basket of
currencies, rose 0.2% to 82.57, the highest since Sept. 19,
2003.
The dollar continued along the upward trajectory it has taken
for much of the second half of 2014. Investors have been wagering
the dollar would rise as stronger U.S. economic data would push the
Fed to raise interest rates sooner than central banks in Japan and
the eurozone.
On Wednesday, Fed Chairwoman Janet Yellen said the central bank
could raise U.S. interest rates for the first time since the
financial crisis as early as its April policy-setting meeting.
Meanwhile, the Bank of Japan and the European Central Bank have
been taking measures to ease policy in their battle to stimulate
growth and ward off deflation, which have weakened their respective
currencies.
Investors expect the Fed to raise rates around mid-2015. Higher
U.S. interest rates are likely to make the dollar more attractive
to yield-hungry investors as they boost returns on assets
denominated in the currency.
Investors re-established their bets on a weaker euro on Friday,
confident that the strong-dollar theme would persist beyond 2014,
said Camilla Sutton, chief currency strategist at Scotiabank.
"All the events of this week still support a stronger dollar,"
Ms. Sutton said. "Other central banks are still set to loosen
policy. Growth differentials are still in play."
Investors will shift their gaze next week to numbers measuring
U.S. growth, inflation and unemployment claims.