NEW YORK (Reuters) - The U.S. dollar hit its highest level against the euro in nearly 10 weeks on Tuesday and rallied against the yen and Swiss franc on increased expectations for an interest rate hike in coming months from the Federal Reserve.
Investors’ anticipation of a rate increase from the Fed in June or July gained momentum following minutes from the central bank’s April meeting released last week and comments on Monday from Fed officials signalling a June hike was firmly on the table.
The euro hit $1.1139 in the afternoon U.S. trading session, marking a roughly 0.7 percent drop on the day and its lowest level since March 16.
The dollar rebounded against the yen after posting its biggest daily percentage decline against the Japanese currency in more than three weeks on Monday, and was last up 0.68 percent at 109.97 yen, just under its session high of 110.11 yen.
“There isn’t anything that could necessarily hold back the Fed, and in fact the contrary, data is strengthening,” said Atul Lele, chief investment officer of investment manager Deltec International Group in Nassau, Bahamas.
Lele said he expected the Fed to hike rates in June or July, and then again in December, and was bullish on the U.S. dollar. He expected the euro to fall towards $1.05 over the next 12 months, while the dollar could rise above 115 yen.
Fed funds futures contracts implied traders expected a 34 percent chance of a rate hike in June, compared with a 30 percent chance on Monday, according to CME Group’s FedWatch programme.
Commerce Department data on Tuesday showed new U.S. single-family home sales surged to a more than eight-year high in April and prices hit a record high, also supporting the greenback.
“The blockbuster housing data has added more bullish fuel to the dollar,” said Joe Manimbo, senior market analyst with Western Union Business Solutions in Washington.
The Australian dollar was last down 0.61 percent against the dollar at $0.7180 after sliding more than 1 percent to $0.7145, its lowest since early March, as comments from Reserve Bank of Australia Governor Glenn Stevens fuelled speculation that interest rates would be cut again.
The dollar index, which measures the greenback against a basket of six major currencies, hit an eight-week high of 95.647. The dollar hit a more than 10-week high against the Swiss franc of 0.9937 franc.
Reporting by Sam Forgione; Additional reporting by Jemima Kelly in London; Editing by Meredith Mazzilli