January 3, 2018 / 1:52 AM / 7 months ago

Dollar advances after strong U.S. data, Fed minutes

NEW YORK (Reuters) - The dollar rallied on Wednesday on upbeat U.S. manufacturing and construction data and after minutes from the Federal Reserve’s last policy meeting showed the central bank remained on track to raise interest rates several times this year.

U.S. Dollar and Euro notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

Snapping a three-week losing streak, the dollar hit session highs against the euro and yen after the minutes from the Fed’s Dec. 12-13 meeting. The dollar index posted its largest daily gain in more than two weeks.

The Fed’s minutes acknowledged the U.S. labor market’s solid gains and the expansion in economic activity, even as they affirmed policymakers’ worries about persistently low inflation. That suggested the central bank will continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Fed officials also discussed the possibility that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to rise, leading to some dollar-buying, analysts said.

“The debate is the same. You have strong growth and low unemployment on one side and surprisingly low inflation on the other side,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in Stamford, Connecticut.

“They have been taking a middle-of-the-road on their policy approach, gradually raising interest rates and unwinding the balance sheet. They will continue the same tack.”

The dollar gained earlier in the session after data showed U.S. construction spending rose 0.8 percent in November to an all-time high of $1.257 trillion, driven by a surge in investment in private residential and nonresidential projects.

At the same time, a U.S. manufacturing index as measured by the Institute for Supply Management rose to 59.7 last month, beating market expectations.

Still, analysts remained skeptical about the dollar’s near-term prospects, noting the expected rate hikes have been priced in. Some also said modest U.S. inflation may encourage the Fed to go slower in raising rates.

In late trading, the dollar .DXY bounced 0.3 percent to 92.18 after falling 2.5 percent over the last three weeks. The dollar’s 10 percent drop in 2017 was the largest annual decline in 14 years.

The greenback also rose 0.2 percent versus the yen to 112.51 yen JPY= on Wednesday.

Friday’s U.S. non-farm payrolls report should provide more clarity about the outlook for interest rates this year.

The euro, meanwhile, slid 0.3 percent to $1.2016 EUR= after hitting a four-month high of $1.2081 on Tuesday, up roughly 3 percent from a mid-December trough.

The single European currency has been supported by improving prospects for the euro zone economy and expectations the European Central Bank will wind down its bond-buying stimulus in 2018.

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Currency bid prices at 2:53PM (1953 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.2016 $1.2057 -0.34% +0.17% +1.2068 +1.2003

Dollar/Yen JPY= 112.4900 112.2800 +0.19% -0.16% +112.6000 +112.1800

Euro/Yen EURJPY= 135.17 135.38 -0.16% -0.01% +135.4900 +134.8100

Dollar/Swiss CHF= 0.9769 0.9714 +0.57% +0.27% +0.9797 +0.9712

Sterling/Dollar GBP= 1.3513 1.3586 -0.54% +0.01% +1.3612 +1.3497

Dollar/Canadian CAD= 1.2537 1.2510 +0.22% -0.32% +1.2553 +1.2500

Australian/Doll AUD= 0.7837 0.7829 +0.10% +0.46% +0.7844 +0.7806

ar

Euro/Swiss EURCHF= 1.1739 1.1714 +0.21% +0.43% +1.1762 +1.1701

Euro/Sterling EURGBP= 0.8892 0.8874 +0.20% +0.10% +0.8901 +0.8848

NZ NZD= 0.7100 0.7103 -0.04% +0.20% +0.7110 +0.7074

Dollar/Dollar

Dollar/Norway NOK= 8.1135 8.1263 -0.16% -1.14% +8.1452 +8.0929

Euro/Norway EURNOK= 9.7501 9.8014 -0.52% -1.00% +9.8058 +9.7315

Dollar/Sweden SEK= 8.1763 8.1665 -0.24% -0.31% +8.1886 +8.1594

Euro/Sweden EURSEK= 9.8260 9.8495 -0.24% -0.13% +9.8585 +9.8149

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Richard Leong; Editing by Dave Gregorio and Paul Simao

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