Dollar nears 10-week high on Fed views; stocks rally

Tue May 24, 2016 6:46pm EDT
 
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By Caroline Valetkevitch

NEW YORK (Reuters) - The dollar hit its highest against the euro in nearly 10 weeks on Tuesday, while U.S. bond prices dipped as expectations grew that the Federal Reserve could raise interest rates soon.

Surprisingly strong data on U.S. new home sales in April supported the view the economy may be strong enough for the Fed to raise interest rates as early as June.

Last week, the Fed surprised investors when the central bank's meeting minutes opened the door to a rate hike as early as June.

World stock indexes rallied, led by shares of financial companies, which benefit from rising interest rates, as well as technology and other growth-oriented sectors.

The euro was down 0.7 percent against the dollar at $1.1136 and hit its lowest level since March 16. EUR=

"A re-pricing of Fed tightening expectations is the principal driver of the U.S. dollar's resurgence," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York. "Markets will wax and wane, but generally speaking, the thrust will be toward dollar gains."

The Dow Jones industrial average .DJI closed up 213.12 points, or 1.22 percent, to 17,706.05, the S&P 500 .SPX gained 28.02 points, or 1.37 percent, to 2,076.06 and the Nasdaq Composite .IXIC added 95.27 points, or 2 percent, to 4,861.06.

MSCI's all-country world stock index .MIWD00000PUS rose 1 percent, while the pan-European FTSEurofirst 300 index .FTEU3 of leading regional stocks ended up 2.3 percent.   Continued...

 
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 16, 2016.  REUTERS/Brendan McDermid