The dollar rose to a two-month high against the euro on Friday after surprisingly strong data on US consumers boosted expectations the Federal Reserve would raise interest rates sooner rather than later. US retail sales posted the largest advance since August last month, while consumer sentiment improved in early December. The reports stoked optimism about a recovery in the world's largest economy and sparked broad-based dollar buying.
"The much stronger-than-expected retail sales number has rekindled expectations of a rate hike sooner than anticipated," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston. "It does appear that the US consumer has been a little bit more resilient than anticipated."
The prospect of prolonged low US interest rates has undermined the dollar in recent months as investors borrow in the low-yielding greenback and reinvest the money in stocks, commodities and higher-yielding currencies in search of returns.
The euro fell as low as $1.4587, according to Reuters data, the lowest since early October. It last traded at $1.4601, off 0.9 percent on the day. The euro was partly weighed down by concerns over the fiscal situation in Greece after a ratings agency downgraded the country's credit rating earlier this week.
A member of the European Central Bank's Executive Board, Gertrude Tumpel-Gugerell, said euro area governments risked destroying public confidence in their economic management by running up unsustainable deficits and public debt. "I think there's still some concern over Greece," said Ronald Simpson, director of currency research at Action Economics in Tampa, Florida.
"On top of that, it's Friday. Going into the end of the year ... there's quite a bit of interest to cover short dollar positions across the board," he added. Against the yen, the dollar rose 1.6 percent to 89.61 yen. The ICE Futures US dollar index, which tracks the greenback versus a basket of six currencies, was up 0.7 percent at 76.575.
DOLLAR, EQUITY BOTH UP The stronger-than-expected US data also led to a breakdown in the inverse relationship between the dollar and risky assets that has existed over much of the past year. Stocks rose early before paring gains.
Good data has tended to pressure the greenback in recent months as investors took on riskier, higher-yielding investments and cut demand for the safe-haven US currency. "I think the risk appetite trade we've been talking about for months is breaking down and I think the correlation between positive US data and dollar strength is going to take hold," said Melvin Harris, market strategist at Easy Forex in New York.
Sterling rose against the euro and yen after Moody's Investors Service said Britain's top-notch sovereign rating was under no immediate threat, although concerns about the UK's fiscal health remained. The top sovereign credit rating of the United States is also not under threat of a downgrade right now, Moody's said. The euro fell 0.7 percent to 89.89 pence, while sterling was up 0.8 percent at 144.82 yen. Against the dollar, the pound fell 0.2 percent to $1.6246. Sterling hit a near eight-week low below $1.62 on Wednesday on concern about Britain's precarious fiscal position.