The US dollar jumped to a six-month high against the euro on Friday, buoyed by another drop in oil prices and growing views the US economic slowdown may be bottoming while growth in the euro zone stalls. The dollar posted a fifth week of gains against the euro as investors shifted their view on the global economy's ability to withstand a downturn initiated in the United States.
The greenback has rallied nearly six percent against the euro zone single currency this month. "We are reassessing the numbers and outlooks in other countries. As a result of that, the US economy looks relatively better and the US dollar is certainly responding," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
Data in the US on Friday showed an unexpected rise in manufacturing activity in the New York state area and an increase in industrial output and consumer confidence. By contrast, reports on Thursday showed the euro zone economy contracted in the second quarter for the first time since the common currency's inception.
The Bank of England this week also warned of economic slowdown ahead and Japan said its economy contracted in the second quarter at the sharpest rate in seven years. In late afternoon trading in New York, the euro was down 0.9 percent on the day at $1.4681, after falling as low as $1.4660, the lowest since February, according to Reuters data.
For the week, the dollar has gained about 1.7 percent versus the euro. The dollar index, which measures the value of the greenback against a basket of six currencies, struck a seven-month high of 77.268. It last traded up 0.7 percent at 77.183.
The greenback also reached a 7-1/2 month high at 110.66 yen, and the dollar's rally knocked an already floundering sterling to two-year lows near $1.85. "The...underlying tone of the US dollar is changing quite dramatically," Watt said. "Once you get the sense that a bear market is over, you're going to get pretty sharp moves at the beginning of a new market."
Goldman Sachs on Thursday said it was time to let go of its 10-year dollar bearish stance, revising its forecast for several US dollar pairings. It now sees the euro falling to $1.45 in three months. The euro should drop further to $1.40 over the next 12 months, the bank said.