Gathering rate hike hopes lift dollar, Treasury yields

Thu Jul 30, 2015 5:14pm EDT
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By Michael Connor

NEW YORK (Reuters) - The dollar touched one-week highs and shorter-term U.S. Treasury yields rose on Thursday as accelerating U.S. gross domestic product data encouraged bets policymakers will start hiking U.S. interest rates as soon as September.

Wall Street ended mostly higher but gains were muted by soft corporate earnings. Oil prices surrendered early increases and declined under the weight of the rising dollar.

The euro fell 0.50 percent against the dollar to $1.0928, which helped the dollar index .DXY rise 0.55 percent at 97.496 after touching 97.773, its highest since July 22.

"The latest GDP report confirms the Fed's narrative that the first-quarter weakness was transitory," said Ian Gordon, G10 currency strategist at Bank of America Merrill Lynch in New York. "The bar for them to hiking rates is not very high."

Data showed economic growth in the United States accelerated in the second quarter, backed by solid consumer demand, to a 2.3 percent annual rate. While short of economists' expectations for 2.6 percent growth, the data still pointed to firming domestic fundamentals.

The U.S. Federal Reserve on Wednesday described the economy as expanding "moderately," with improvements in housing and the labor market. That left the door open for a hike in interest rates in September, which would be the first rise since 2006.

Treasury prices, which move in the opposite direction of yields, were mostly off. Price declines were largest in 3-year and 5-year maturities, while benchmark 10-year Treasuries US10YT=RR were last up 2/32 of a point in price, pushing the yield to 2.2697 percent.

Wall Street's main indexes were mixed. The Dow Jones industrial average .DJI finished down 5.01 points, or 0.03 percent, to 17,746.38, the S&P 500 .SPX rose 0.15 points, or 0.01 percent, to 2,108.72 and the Nasdaq Composite .IXIC added 17.05 points, or 0.33 percent, to 5,128.79   Continued...

A red London bus passes the Stock Exchange  in London February 9, 2011.  REUTERS/Luke MacGregor