Dollar on Track for Eighth Month of Gains

Reuters

The dollar index fell on Friday amid month-end selling but was still on track for a record eighth month of gains on better data and comments from Federal Reserve officials that bolstered bets for a rate rise later this year.

The Swedish crown rose to a one-month high of 9.3250 crowns per euro after data showed the economy grew at its fastest pace in more than three years in the fourth quarter. The strong crown is an added complication for the Riksbank as it battles deflation.

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But most attention was on the dollar index, set to mark its longest streak of monthly gains since the greenback was floated as a fiat currency in 1971. February's gains, though, were the smallest of the eight months.

On the day, the index was off 0.2 percent at 95.089, having rallied 1.1 percent to a one-month high of 95.357 on Thursday.

Those hefty gains followed data showing U.S. core consumer prices, excluding food and energy costs, rose 0.2 percent in January, more than the 0.1 percent expected. Durable goods orders also rose 2.8 percent last month.

San Francisco Fed President John Williams and St. Louis Fed chief James Bullard both suggested the Fed might end its near-zero rate policy sooner than some traders expect.

"It is the data, especially core inflation and durable goods, that is catching attention," Barclays strategist Hamish Pepper said. "We are still calling for a June rate hike and the market is not pricing that. They are looking for a hike much later. So yes, we think the dollar will outperform."

He said month-end hedging flows were a factor on Friday. A Barclays note said rebalancing of hedges by stocks and bonds investors would lead to dollar selling against major currencies.

That was because U.S. stocks had risen much more than some global peers, while moves in bond markets were rather limited. A Citi note echoed that view.

Friday's main data is a second reading of U.S. fourth-quarter GDP.

The dollar's dip allowed the euro to edge up 0.2 percent to $1.1220, off Thursday's one-month low of $1.1184. Higher than expected inflation data from across Europe also helped.

But with European Central Bank asset buying imminent, traders said the euro's rise would be temporary.

"Speculation that foreign holders of euro zone bonds may be more prepared to sell their holdings to the ECB could heighten the downside impact of the ECB's program on the euro particularly in the early phase," said Jane Foley, senior currency strategist at Rabobank. (Additional reporting by Masayuki Kitano; Editing by Catherine Evans)