Dollar rises on upbeat U.S. manufacturing data

Reuters

Published May 20, 2021 08:57PM ET

Updated May 21, 2021 04:00PM ET

By Saqib Iqbal Ahmed and Ritvik Carvalho

NEW YORK (Reuters) - The dollar rose against a basket of currencies on Friday, boosted by encouraging U.S. manufacturing data, but remained on track for a weekly loss as traders' concerns about taper talk in U.S. Federal Reserve minutes moderated.

The dollar has given back much of the advance it made after a mention in minutes from the Fed's April monetary policy meeting of possible future discussions on paring back stimulus, raised hopes U.S. interest rate raises might come earlier than previously thought.

"Taper concerns have faded rather quickly, it would seem," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

The U.S. currency found some support after data showed U.S. factory activity gathered speed in early May amid strong domestic demand.

The dollar index, measuring the greenback against a basket of six currencies, was 0.222% higher at 89.993. The index, which hit a four-month low earlier in the session, was on pace for a loss of 0.4% for the week.

Some strategists remain doubtful the Fed will rush to pull back from its accommodative stance.

"We continue to expect the USD to remain soft while U.S. yields remain contained," Osborne said.

Still, continued improvement in U.S. data, especially relative to Europe, is likely to bolster the bull case for the greenback, other analysts said.

"The latest flash PMIs reinforce our view that the economy will continue to grow at a faster pace in the U.S. than in the euro-zone in the next few years," said Simona Gambarini, markets economist at Capital Economics.

"This feeds into our forecast that long-dated yields will rise more rapidly in the former than in the latter and that the euro will fall back against the U.S. dollar," Gambarini said

A loosening of COVID-19 restrictions helped surveys of German services activity and French business activity come in better than expected in May, although they had little effect on the euro on Friday.

Graphic: Dollar heads for weekly drop, https://fingfx.thomsonreuters.com/gfx/mkt/dgkvloelrpb/dxy.png

The British pound fell 0.2% on Friday but was on track for its third consecutive week of gains against the dollar, helped by a series of data releases reinforcing market expectations for a strong economic recovery in the United Kingdom.