Dollar rises on euro woes, Fed rate outlook

New York

THE dollar climbed to a two-week peak versus a currency basket on Friday, as concerns about the Italian budget weighed on the euro while the greenback drew support from an outlook for multiple US interest rate hikes until 2020. The dollar also rose to a nine-month high against the yen.

"The reasons why the US dollar was going up in the first place have not changed," said John Taylor, president of global macro research firm Taylor Global Vision in New York. "Rising US rates at the same time the global economy is showing signs of slowing down and the ongoing trade war still provides a major barrier for any cyclically-sensitive currency, whether it's an emerging or developed market currency," he added.

The dollar rose to a nine-month peak versus the yen of 113.66 yen, and was last up 0.2 per cent at 113.59 yen.

US data on Friday all supported the view of an economy that is on a stable growth path. US consumer spending rose 0.3 per cent in August after an unrevised 0.4 per cent gain in July, while a measure of underlying inflation remained at the Fed's 2 per cent target for a fourth straight month.

The Chicago Purchasing Management index for September was 60.4, slightly lower than the consensus forecast. The US consumer sentiment index for September, was slightly lower than forecast at 100.1, but still the highest since March.

The euro, meanwhile, slipped below US$1.16 for the first time in two weeks after Italy's government agreed on a budget seen by some investors as defying Brussels. The euro was last down 0.2 per cent at US$1.1613.

Political wrangling over the budget in heavily indebted Italy has put a lid on a recent revival in the euro's fortunes against the dollar.

The euro posted its biggest one-day decline for nearly two months on Thursday as the battle over fiscal policy intensified in the eurozone's third-largest economy.

Financial markets are nervous that Italy's spending plans will boost the country's debt, which is already the second highest in the eurozone as a share of economic output after Greece, near 131 per cent of gross domestic product (GDP). The government is targeting a budget deficit at 2.4 per cent of GDP, inside the 3 per cent ceiling prescribed by European Union rules. REUTERS