NEW YORK (Reuters) – The U.S. dollar rose on Monday, hitting a 12-1/2-year peak against the yen after the release of stronger-than-expected data on U.S. manufacturing and construction spending, while renewed worries over a Greek default contributed to the euro’s weakness.
Reports showed U.S. manufacturing picked up in May and construction spending surged in April to a nearly 6-1/2-year high. The data bolstered optimism about the health of the U.S. economy and hardened confidence the Federal Reserve will increase interest rates this year.
“There is an element of relief there,” said Steven Englander, global head of G10 foreign exchange strategy at CitiFX in New York.
“It gives more credence to the story that the Q1 slowdown was an aberration,” he said in reference to data on Friday showing U.S. gross domestic product shrank at a 0.7 percent annual rate in the first quarter.
The latest data fueled the greenback’s rise to 124.920 yen, its highest since December 2002. The data underscored the divergence between the Fed’s path toward tighter monetary policy and the Bank of Japan’s ultra-loose policies.
“It’s not a huge shift, but it pushes expectations in a hawkish direction,” said Vassili Serebriakov, currency strategist at BNP Paribas in New York, on the impact of the U.S. data on Fed hike expectations. “Dollar/yen is primarily at this point a trade on monetary policy divergence.”
The Fed’s first rate increase in nearly a decade is expected to boost the dollar by driving investment flows into the United States.
Analysts said worries about Greece weighed on the euro earlier in the session after the country missed a self-imposed Sunday deadline for reaching an agreement with its lenders to unlock aid. Greece faces a payment to the International Monetary Fund on Friday and the expiration of its bailout program on June 30.
The euro last traded down 0.54 percent against the greenback at $1.09310, retreating from Friday’s one-week high of $1.1006 <EUR=EBS>. The dollar was last up 0.51 percent against the yen at 124.800 yen <JPY=EBS>.
The dollar was last up 0.56 percent against the Swiss franc at 0.94565 franc <CHF=EBS>. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.53 percent at 97.416 <.DXY>.
(Reporting by Sam Forgione; Additional reporting by Jemima Kelly in London; Editing by Lisa Von Ahn and Andre Grenon)
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