Dollar Rises Most in Two Months on Short-Covering, Data Rebound

The dollar increased by the most in almost two months as the U.S. economy rebounds at a faster pace than others in Europe and Asia, leaving traders covering short bets and rebalancing portfolios as the month ends.

The Bloomberg Dollar Spot index climbed as much as 0.7% on Friday, the most since March 4, trimming its first monthly loss this year. The greenback’s gains picked up steam after data showed personal incomes rose the most since 1946, inflation advanced and a gauge of business activity beat expectations.

The gains strengthened the currency against all of its Group-of-10 peers, driving the euro down by the most in a month as the shared currency broke through its 100-day moving average. The MSCI Inc. gauge of emerging-market currencies declined, heading for the first drop in five sessions.

The dollar is now poised to end a three-week losing streak. President Joe Biden administration’s unprecedented spending packages are helping to boost economic growth, a positive for dollar bulls. But bears argue that America’s growth will eventually be overshadowed by a broader revival in the global economy and renewed appetite for riskier assets.

Dollar Rises Most in Two Months on Short-Covering, Data Rebound

The greenback gained more support as Robert Kaplan, president of the Dallas Federal Reserve, said it’s time for the U.S. central bank to start debating whether to start pulling back on some of its asset purchases as growth quickens. Traders also cited 10-year Treasury yields holding near recent highs and profit-taking ahead of central bank meetings, with the Bank of England and the Reserve Bank of Australia set to meet next week.

“It’s month-end and things can be messy,” said Alvise Marino, currency strategist at Credit Suisse, who remains bullish on the dollar versus the euro, yen and franc amid relatively higher U.S. yields.

Traders are looking next week to additional data including U.S. non-farm payrolls and ISM manufacturing.

The data may point to more strength and could provide further support for the greenback, “putting more pressure on the Fed and rates,” said Chris Turner, strategist at ING Bank NV.

©2021 Bloomberg L.P.

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