By Joseph Adinolfi, MarketWatch , Hiroyuki Kachi
Euro falls to $1.10 Friday
The dollar recorded its first weekly gain against the euro in
five weeks on Friday, finishing the week up 3.4% against the shared
currency.
However, it remains about 5% below a more-than 12-year-high
against the euro reached in mid-March.
The dollar started the week off slightly stronger against its
rivals, but its gains accelerated Tuesday after official data
showed that housing starts surged 20% in April
(http://www.marketwatch.com/story/housing-starts-surge-20-in-april-2015-05-19).
The strong data supported the dollar through Wednesday, but it
began to unwind its gains after minutes from the April meeting of
Fed policy makers showed that policy makers are unlikely to raise
rates at their June meeting.
Its weakness was short-lived. The buck bounced back Friday after
a report showed that core consumer prices rose 0.3% in April,
(http://www.marketwatch.com/story/housing-healthcare-behind-strong-rise-in-core-inflation-in-april-2015-05-22)
the fastest rate since January 2013, a sign that inflation in the
U.S. may finally be on track to meet the Federal Reserve's target
level of just below 2%. Economists surveyed by MarketWatch had
expected a 0.1% gain.
The euro (EURUSD) fell to $1.1000 after the consumer-price data,
its lowest level in about three weeks, from $1.1110 late Thursday
in New York. It traded at $1.1005 late Friday in New York. The
dollar (USDJPY) strengthened to 121.58 yen, its highest level since
mid-March, from Yen121.05 late Thursday. The pound (GBPUSD)
weakened to $1.5477, from $1.5662.
Federal Reserve Chairwoman Janet Yellen, speaking Friday
afternoon in Providence, R.I., said the central bank will likely
raise interest rates this year
(http://www.marketwatch.com/story/yellen-sticks-to-forecast-of-rate-hike-this-year-followed-by-gradual-moves-2015-05-22)
if the economy improves as expected. It's been widely expected that
the Fed would act in the second half of this year, and the dollar
was little changed in the wake of her comments.
Mark Luschini, chief investment strategist at Janney Montgomery
Scott, said the CPI report was a "surprise" for the market, causing
Treasurys, which were up ahead of the data, to turn lower, an early
rally in gold to fade, and the dollar to move sharply higher.
"There's symmetry in all those readings," Luschini said. "That's
a number that was somewhat Fed-friendly, giving the Fed ammunition
if they want to raise interest rates this year."
Strong economic data typically strengthens the dollar because it
increases the likelihood that Federal Reserve policy makers will
raise rates earlier. Higher interest rates typically lead
currencies to strengthen, because they increase the return on
deposits held in that currency.
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