Dollar Gains for Second Week as Bulls Look Past Decline in GDP – Bloomberg

The dollar had the biggest back-to-back weekly gains versus the yen since November, shrugging off downbeat U.S. economic data as investors see the Federal Reserve moving closer to raising interest rates this year.

The greenback was little changed against most of its major peers as revised data showed the U.S. economy hit a bigger ditch in the first quarter than initially estimated. Bulls are counting on an improved U.S. jobs market and signs inflation is picking up to lead to higher borrowing costs, while central banks in Japan and the euro region keep applying monetary stimulus to revive their economies.

"It's kind of like a Hollywood script which you know the plot already — you have a weak first quarter, you get a stable second quarter, and you get a rebound in the second half of the year," Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California, said by phone. "Yellen and other Fed presidents have all been fairly hawkish. They're all talking about rate hikes, that's been pushing the dollar up."

The dollar gained 2.2 percent this week to 124.15 yen at 5 p.m. in New York. It touched 124.46 on Thursday, its strongest level since December 2002.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 1 percent this week to 1,191.94, adding to last week's 2.6 percent advance.

Labor Metrics

The greenback has risen almost every day since May 22, when a key inflation measure climbed faster than economists predicted and Fed Chair Janet Yellen said she expected rates to increase in 2015.

Data next week will help investors determine whether the economy is rebounding fast enough to withstand the first rate increase in almost a decade. Economists surveyed by Bloomberg forecast American employers added more than 200,000 jobs in May, and gains in average hourly earnings accelerated from the previous month.

"As the Fed has mentioned, the strong mandate here does seem to be labor metrics," Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc., said by phone. "We'll need to see continuing positive labor metrics in order to see this dollar rally get to the levels it has the potential of getting to."

GDP Contraction

Gross domestic product in the U.S. shrank at a 0.7 percent annualized rate in the first quarter, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9 percent drop.

Investors are taking the contraction in the GDP in stride as American economy shrank in four out of the seven first quarters since 2009, driven partly by slowing economic activities during winter.

"Everyone's looking forward now to a much more healthy American economy in the remaining three quarters," said Kevin Mahn, president and chief investment officer at Parsippany, New Jersey-based Hennion & Walsh Asset Management, which has about $ 170 million of assets under management. "If other major developed central banks across the globe continue to lower interest rates, the dollar can only get stronger."