The dollar recorded its first weekly gain against the euro in five weeks on Friday, finishing the week up 3.4% against the shared currency.
However, it remains about 5% below a more-than 12-year-high against the euro reached in mid-March.
The dollar started the week off slightly stronger against its rivals, but its gains accelerated Tuesday after official data showed that housing starts surged 20% in April. The strong data supported the dollar through Wednesday, but it began to unwind its gains after minutes from the April meeting of Fed policy makers showed that policy makers are unlikely to raise rates at their June meeting.
Its weakness was short-lived. The buck bounced back Friday after a report showedthat core consumer prices rose 0.3% in April, the fastest rate since January 2013, a sign that inflation in the U.S. may finally be on track to meet the Federal Reserve’s target level of just below 2%. Economists surveyed by MarketWatch had expected a 0.1% gain.
The euro EURUSD, -0.8549% fell to $1.1000 after the consumer-price data, its lowest level in about three weeks, from $1.1110 late Thursday in New York. It traded at $1.1005 late Friday in New York. The dollar USDJPY, +0.40% strengthened to 121.58 yen, its highest level since mid-March, from ¥121.05 late Thursday. The pound GBPUSD, -1.0791% weakened to $1.5477, from $1.5662.
Federal Reserve Chairwoman Janet Yellen, speaking Friday afternoon in Providence, R.I., said the central bank will likely raise interest rates this year if the economy improves as expected. It’s been widely expected that the Fed would act in the second half of this year, and the dollar was little changed in the wake of her comments.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, said the CPI report was a “surprise” for the market, causing Treasurys, which were up ahead of the data, to turn lower, an early rally in gold to fade, and the dollar to move sharply higher.
“There’s symmetry in all those readings,” Luschini said. “That’s a number that was somewhat Fed-friendly, giving the Fed ammunition if they want to raise interest rates this year.”
Strong economic data typically strengthens the dollar because it increases the likelihood that Federal Reserve policy makers will raise rates earlier. Higher interest rates typically lead currencies to strengthen, because they increase the return on deposits held in that currency.