NEW YORK — The dollar rose for a fourth straight session on Thursday against a basket of major peers to hit a fresh two-month high, as U.S. economic data signaled resilience even after the Federal Reserve’s aggressive rate hike cycle.
Weekly initial jobless claims rose by 4,000 last week to 229,000, below the Reuters estimate of 225,000 while data from the prior week was revised sharply lower, indicating the labor market remains strong. In addition, the second estimate of first-quarter Gross Domestic Product growth confirmed the economy slowed but the 1.3% increase was revised up from the initial 1.1% reading.
In contrast the German economy, Europe’s largest, was in recession in the first quarter as GDP fell 0.3%, sending the euro lower. The dollar hit a two-month peak, lifted also by safe-haven demand as worries mounted about a U.S. default.
“A lot of it has to do with the U.S. economy having a bit of a wind at its back compared to what’s going on abroad. The data today really highlights the divergence we’ve seen in growth prospects across the Atlantic,” said Joe Manimbo, senior market analyst at Convera in Washington DC.
“The hotter data is keeping the door wide open for the Fed to move again in June and that is a big turnaround because a month ago the feeling was there was a risk of the Fed cutting rates rather than pausing so a big turnaround in rate expectations.”
The dollar index rose 0.27% at 104.100 after hitting 104.27, its highest since March 17. The four-day streak of gains would mark the longest since late February.
The euro was down 0.2% to $1.0727.
The probability of a 25 basis point rate hike from the Fed at its June meeting is about 42%, according to CME’s Fedwatch Tool, up from about 36% on Wednesday.
Recent comments from Fed officials have indicated members are divided about whether to keep hiking rates or not. Boston Federal Reserve President Susan Collins said on Thursday the time may be at hand for the U.S. central bank to pause its rate hike cycle.
Worries about a potential U.S. default supported the dollar as talks continue in Washington to raise the $31.4 trillion debt ceiling. The Treasury has warned it will be unable to pay all its bills on June 1 if the limit is not increased.
Fitch put the United States’ “AAA” debt ratings on negative watch, a precursor to a possible downgrade should lawmakers fail to reach an agreement. In addition, credit rating agency DBRS Morningstar put the U.S. on review for a downgrade on Thursday.
White House and Republican negotiators made some progress in late-night talks, top congressional Republican Kevin McCarthy said on Thursday.
The Japanese yen weakened 0.18% versus the greenback to 139.70 per dollar, while Sterling was last trading at $1.2347, down 0.14% on the day.
(Reporting by Chuck Mikolajczak; Editing by Richard Chang)