US dollar rises as focus shifts from Grexit fears to Fed rate hike timing

The US dollar advanced in trading today to the highest in almost three weeks against a basket of major currencies.
The US dollar advanced in trading today to the highest in almost three weeks against a basket of major currencies. PHOTO: BLOOMBERG

LONDON (Reuters) - The US dollar was set for its biggest weekly rise since May on Friday as economic data reinforced expectations for a US rate hike by the end of 2015, with euro zone shares steadying after strong gains as Greece looked set to secure a bailout.

The US dollar steadied near a seven-week high against a basket of major currencies, receiving a boost against its peers after lower US jobless claims.

The US dollar index is up 1.5 per cent this week.

The euro hovered close to a seven-week low of US$1.0854 hit in the previous session. The US dollar touched a three-week high of 124.23 yen.

Investor attention has returned to gauging the timing of the next US interest rate rise, with clues sought in US CPI data and Michigan sentiment data later in the session.

"The focus is turning to the US rate cycle, and (the market reckons) a September rate hike is still, if not probable, at least possible," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

"That's picked up from Greece as the main driver of our market and therefore the dollar is, in a fairly parallel move, stronger off the back of it ... From now the euro goes down primarily because the dollar is going up."

Euro zone shares were steady as a relief rally over Greece's bailout agreement ran out of steam. The Euro STOXX 50 was flat on Friday but has rallied 8 per cent over the last two weeks, its biggest fortnightly gain since January.

German yields fell on Friday ahead of a parliamentary debate in Berlin to approve a government request to open talks on a new three-year bailout programme for Greece.

Following its successful passage through the Greek parliament, German lawmakers are expected to give Berlin a clear green light to start negotiations on a third bailout programme for Greece.

Analysts said that with the risk of a Greek exit from the euro zone diminished, the market would refocus on monetary policy divergence between the Fed, which is pondering rate rises, and monetary easing by the ECB.

The MSCI World Index, which tracks stocks from developed economies, is up 2.2 per cent this week, its biggest weekly gain since May.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.4 per cent as Chinese shares recovered further after a series of government support measures to halt their recent crash.

Advancing for the second straight day, Shanghai shares were up 3.5 per cent.

Japan's Nikkei rose 0.3 per cent on a softer yen, up 4 per cent on the week. South Korea's Kospi shed 0.5 per cent on concerns second quarter corporate earnings could prove disappointing, particularly among ship builders.