The dollar gained to the strongest level since September versus the euro after U.S. policy makers raised the possibility they may raise interest rates sooner than anticipated, minutes of the Federal Reserve's July meeting show.
The U.S. currency reached the highest in six months against major peers before Fed Chair Janet Yellen speaks tomorrow at a meeting of central bankers in Jackson Hole, Wyoming. Norway's krone gained the most in more than a week after the nation's economy expanded more in the second quarter than analysts estimated. The pound declined to the lowest level in four months. Australia's dollar fell after an index of Chinese manufacturing fell more than economists forecast.
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"The minutes were a green light to add to dollar long" positions, Stephen Gallo, the European head of currency strategy at Bank of Montreal in London. "It favors dollar divergence. I fear that if we get another three to four weeks of this dollar strength and upside in U.S. yields the market will get ahead of itself in viewing the Fed as hawkish." A long position is a bet an asset will rise.
The U.S. dollar was little changed at $1.3264 per euro at 6:53 a.m. in New York after appreciating to $1.3242, the strongest level since Sept. 10. The greenback was at 103.79 yen after advancing to 103.96, the highest since April 4. The euro was at 137.66 yen.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, was little changed at 1,028.14 after rising to 1,029.64, the highest since Feb. 4.
The dollar's gains may be limited to reaching $1.3150 in the next four weeks, BMO's Gallo said.
Futures traders saw about a 54 percent chance the Fed will raise its benchmark interest rate to at least 0.5 percent by July, up from 48 percent odds the previous day.
"Many participants noted that if convergence toward the committee's objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated," the minutes of the Fed's July 29-30 meeting showed.
There was no discussion of the timing of a rate increase in the minutes. Fed officials have forecast that it would occur sometime next year. The central bank has kept its benchmark rate at almost zero since December 2008.
The dollar has strengthened 1.8 percent in the past month, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Norway's krone. The euro fell 0.4 percent and the yen declined 0.9 percent.
Technical indicators suggest the dollar's gains may have come too fast. The currency's 14-day relative-strength index against the yen rose to 77, while the equivalent gauge versus the euro climbed to 75, both above the level of 70 that some traders see as signaling an asset is overbought and may be about to reverse course.
"Because the U.S. currency has surged so quickly, further gains could come slower," said Tomohito Katagiri, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. "But at the moment, I can't find any reason to sell the dollar."
Norway's krone gained versus all 31 of its major counterparts after data showed the nation's economy grew 1.2 percent in the three months through June, after expanding 0.5 percent in the first quarter. Economists forecast 0.6 percent growth, according to the median estimate in a Bloomberg survey.
The krone appreciated 0.6 percent to 8.1657 per euro, the biggest gain since August 11. It climbed 0.6 percent to 6.1567 per dollar.
The pound weakened to the lowest level since April against the dollar even as U.K. retail sales rose more in July than economists forecast. Sales volumes excluding auto fuel increased 0.5 percent from June, when they fell 0.1 percent, the Office for National Statistics said. The median forecast in a Bloomberg survey of analysts was for a 0.4 percent increase.
The pound was little changed at $1.6589 after earlier declining to $1.6564, the lowest since April 4.
The Australian dollar weakened versus most of its 16 major peers as HSBC Holdings Plc and Markit Economics said their preliminary Purchasing Managers' Index for China dropped to 50.3 in August, from 51.7 in July. China is Australia's largest trading partner.
The Aussie was little changed at 92.84 U.S. cents after declining to 92.38 cents, the lowest level since June 3.