NEW YORK :The dollar scaled three-week peaks on Friday, supported by better-than-forecast U.S. retail sales data released on Thursday that backed expectations for a reduction of asset purchases by the Federal Reserve before the end of the year.
The dollar index, a gauge of the greenback's value against six major currencies, rose to 93.220, the highest since the third week of August. It was last up 0.4per cent at 93.207.
For the week, the dollar index gained 0.6per cent, its largest weekly percentage rise since mid-August.
The Fed holds a two-day monetary policy meeting next week and is expected to open discussions on reducing its monthly bond purchases, while tying any actual change to U.S. job growth in September and beyond.
"While we doubt that the FOMC will set out a plan for tapering its asset purchases, the new economic projections may shed some light on its reaction function given building cyclical inflationary pressures," wrote Jonathan Petersen, markets economist at Capital Economics, in its latest research note.
"Our view remains that inflation in the U.S. will stay elevated for longer than the FOMC and investors currently anticipate, in turn supporting higher U.S. yields and a stronger dollar," he added.
Speculation about a Fed taper this year gathered pace after U.S. retail sales unexpectedly increased in August, data showed on Thursday, rising 0.7per cent from the previous month despite expectations of a 0.8per cent fall. A business sentiment survey also showed a big improvement.
In afternoon New York trading, the euro slid 0.3per cent to US$1.1729, after hitting a three-week low of US$1.1724 earlier in the session.
The University of Michigan consumer sentiment for September inched higher to 71 versus the final August reading of 70.3, but overall analysts said the rise was nowhere near the improvements seen in the Empire States and Philadelphia Fed manufacturing surveys.
The dollar held gains after the Michigan sentiment report.
Currency markets were generally quiet on Friday with traders reluctant to take on new positions ahead of a clutch of important central bank meetings next week including the Fed, the Bank of Japan and the Bank of England.
The dollar was up 0.5per cent against the Swiss franc at 0.9320 francs, after earlier hitting a five-month high of 0.9324 francs .
The dollar rose 0.2per cent to 109.92 yen.
The yen has shown limited reaction to the ruling Liberal Democratic Party's leadership race, which formally kicks off on Friday ahead of a Sept. 29 vote. The LDP's parliamentary dominance means the party's new leader will become prime minister.
The dollar also rose to a two-week high against the offshore yuan and was last up 0.3per cent at 6.4711. The yuan is being pressured by growing worries about China's real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week.
The British pound fell 0.4per cent to US$1.3738 as UK retail sales undershot expectations. However, with investors bringing forward forecasts for a Bank of England interest rate hike to mid-2022, sterling remains supported.
Currency bid prices at 2:59PM (1859 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 93.1820 92.8730 +0.35per cent 3.557per cent +93.2200 +92.7600
Euro/Dollar US$1.1729 US$1.1768 -0.33per cent -4.00per cent +US$1.1789 +US$1.1724
Dollar/Yen 109.9250 109.7500 +0.16per cent +6.39per cent +110.0750 +109.6700
Euro/Yen 128.93 129.13 -0.15per cent +1.58per cent +129.6600 +128.9200
Dollar/Swiss 0.9323 0.9279 +0.46per cent +5.36per cent +0.9324 +0.9261
Sterling/Dollar US$1.3737 US$1.3792 -0.38per cent +0.57per cent +US$1.3812 +US$1.3736
Dollar/Canadian 1.2742 1.2685 +0.44per cent +0.05per cent +1.2762 +1.2638
Aussie/Dollar US$0.7273 US$0.7295 -0.30per cent -5.45per cent +US$0.7321 +US$0.7266
Euro/Swiss 1.0933 1.0915 +0.16per cent +1.17per cent +1.0935 +1.0906
Euro/Sterling 0.8535 0.8528 +0.08per cent -4.50per cent +0.8553 +0.8523
NZ US$0.7040 US$0.7076 -0.53per cent -1.99per cent +US$0.7086 +US$0.7026
Dollar/Norway 8.6910 8.6385 +0.69per cent +1.29per cent +8.7075 +8.5925
Euro/Norway 10.1958 10.1410 +0.54per cent -2.59per cent +10.2139 +10.1136
Dollar/Sweden 8.6743 8.6210 +0.31per cent +5.83per cent +8.6896 +8.6038
Euro/Sweden 10.1750 10.1435 +0.31per cent +0.98per cent +10.1965 +10.1370
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Muralikumar Anantharaman, Alex Richardson and Sonya Hepinstall)