Dollar jumps to 6-month high after data, ECB announcement

(Updated at 2:52 P.m. EDT/1852 GMT)

By Chuck Mikolajczak

NEW YORK (Reuters) – The dollar index surged to a six-month high on Thursday, as economic data was mostly stronger than anticipated and the European Central Bank (ECB) signaled it was likely done with its interest rate hike cycle.

U.S. retail sales increased 0.6% in August, more than the expected 0.2% rise, boosted by higher gasoline prices while weekly initial jobless claims rose to 220,000 but were below the 225,000 forecast.

Rising gasoline prices also affected the latest inflation data, as the producer price index for final demand rose 0.7% last month, more than the 0.4% estimate.

The dollar index was last up 0.64% at 105.41, just off the 105.43 level hit earlier in the day, its highest since March 9. The index was on track for its biggest one-day percentage gain in just over a week.

The euro slumped against the dollar after the ECB raised its key interest rate to a record high of 4% on Thursday but indicated this was likely to be its final move in a more than year-long fight against inflation as the euro zone economy continues to struggle. The euro was down 0.89% at $1.0635 after falling to $1.0629, its weakest since March 17 and on pace for its biggest one-day percentage fall since July 27.

“(ECB President Christine) Lagarde is hinting that this could be the last hike because she’s saying if we keep rates here for a certain period of time this will do the job sort of thing,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.

“And then I think every data point this morning out of the US was better than expected – jobless claims, retail sales, headline PPI – so it’s kind of like a double boost for the dollar here.”

Despite the US economic data, views for the Federal Reserve remained largely intact, with expectations the central bank will hold rates steady at the conclusion of its Sept. 19-20 policy meeting at 97%, according to CME’s FedWatch Tool, up slightly from the 96% on Wednesday. Expectations for a 25 basis point hike at the November meeting have shifted down to 35.3% from 41% the prior day.

Sterling traded at $1.2418, down 0.68% on the day after falling to $1.2400, a three-month low and was poised for its biggest one-day percentage decline since Aug. 24. The dollar edged down 0.01% at 147.44 against the yen.

China’s offshore yuan weakened on Thursday after the People’s Bank of China said it would cut banks’ reserve requirement ratio by 25 basis points.

The dollar rose to as high as 7.2969 against the yuan traded offshore, and was last up 0.27% at 7.2907 on the day.

(Reporting by Chuck Mikolajczak; editing by David Evans and Richard Chang)