By James Ramage
The dollar soared to a monthly high against the euro on Thursday
on expectations of higher U.S. interest rates and in anticipation
of Europe's massive stimulus program.
The euro dropped 1.5% to $1.1194 in late-afternoon trade, its
lowest level since Jan. 26. The common currency recorded its
largest one-day decline in more than a month and sits a penny above
its lowest level since April 30, 2003.
The dollar rose 0.5% to 119.46 yen.
Early in the day, renewed investor focus on the March launch of
the European Central Bank's asset-purchase program drove down the
euro as well as the yields on many eurozone government bonds. The
central bank's planned $68 billion monthly purchases, which involve
printing new money to buy debt securities, are expected to weigh on
the common currency.
The dollar's rise against the euro accelerated after inflation
and durable-goods orders in the U.S. were firmer than expected,
suggesting the economy is strengthening toward levels that will
persuade the Federal Reserve to raise interest rates.
The U.S. currency's gains marked a turnaround from two days of
modest losses after Fed Chairwoman Janet Yellen's testimony to
Congress depressed investor interest in the U.S. currency. Her
cautious stance on interest rates damped hopes that the central
bank would raise borrowing costs around midyear.
The consumer price index fell a seasonally adjusted 0.7% last
month from December, the Labor Department said. But prices that
exclude volatile food and energy, a key measure for the Fed, rose
0.2% last month and increased 1.6% from a year earlier. Economists
had predicted a 0.6% decline in overall prices last month from
December and expected a 0.1% gain for core prices for January.
The core inflation number gave the dollar momentum, said Camilla
Sutton, chief currency strategist at Scotiabank. The Fed has said
it would look past the effects of plunging oil prices on inflation,
which the central bank predicted would be temporary.
"From the Fed's perspective, a stabilization in core inflation,
combined with a strengthening in the employment numbers, are what
they want to see," Ms. Sutton said. "And seeing the core numbers is
encouraging for those who expect a June rate hike."
In addition, orders for manufactured goods such as household
appliances and automobiles climbed 2.8% in January from a month
earlier, the Commerce Department said. Economists had forecast
orders to rise 0.6%.
The Federal Reserve has indicated it would raise interest rates
when the economy is firmly on the road to recovery. Higher interest
rates would boost returns for U.S. assets, drawing more investors
to the dollar. U.S. interest rates have been near zero since
2008.
--Write to James Ramage at james.ramage@wsj.com