US dollar rallies with Fed rate hike back in focus

[SINGAPORE] The US dollar rallied Monday after forecast-beating US retail sales data bolstered expectations that the Federal Reserve will hike interest rates this year, while the Turkish lira recovered after being hit by the weekend's attempted coup.

Official figures on Friday showed US retail sales advanced 0.6 per cent in June, signalling a pick-up in consumer spending, which drives about two-thirds of the world's biggest economy. They also came a week after a massive surge in US jobs creation last month.

"The market is pricing in a greater probability of a Fed rate hike in 2016," said Stephen Innes, senior trader at Oanda Asia Pacific.

"To be exact, US interest rate futures are pricing in a 40 per cent chance of a 25 (point) hike in December. The accelerator has been an intense round of US data on the heels of strong June employment figures."

A Fed rate increase typically encourages investors to the US currency for better returns, boosting its value.

In Singapore morning trade, the dollar was at 105.60 Japanese yen, up from 104.79 yen in late New York trade on Friday.

The greenback also rose against most other Asian currencies, with the South Korean won and India's rupee each down 0.2 per cent, while the Indonesian rupiah slipped 0.1 per cent. Malaysia's ringgit shed 0.9 per cent and the Singapore dollar dipped 0.1 per cent.

However, the euro rose to US$1.1069 from US$1.1041 Friday and to 116.87 yen from 115.70 yen.

Japanese financial markets are closed Monday for a holiday.

Singapore's United Overseas Bank said the robust US retail sales and a stronger-than-expected economic data from China "diminished the appetite for the yen as a haven from risk".

Speculation of more stimulus from Japan's government and central bank also helped pushed the yen lower, analysts said.

The Turkish lira climbed 1.9 per cent after tumbling Friday as the army attempted to wrest control of the country from President Recep Tayyip Erdogan.

The uprising started two hours before trade in the currency stopped for the weekend, sending the lira plunging 4.6 per cent, its sharpest rate for eight years.

The broadly upbeat outlook and gains on most regional stock markets, also provided fresh support for sterling, helping it edge back up after tanking last month in reaction to Britain's shock vote to leave the European Union.

The pound bought US$1.3246, up from US$1.3174 and sharply higher than the 31-year-low below US$1.28 touched earlier this month.

AFP