US Dollar Touches Highest Level in 3 Weeks Against Euro Before Giving up Gains

The US dollar advanced to the strongest level in 3 weeks against the euro on Thursday as traders felt more confident about the outlook of the US economic growth. Data released earlier today painted a positive image of the economy, which improved expectations of an interest rate hike from the Federal Reserve in June.

The US Bureau of Labor Statistics released a report at 12:30 GMT today, which said that the producer price index rose by a seasonally adjusted 0.5% in April from a 0.1% decline in March. The new reading beat estimates of a 0.2% rise. April’s increase placed the gain over the previous 12 months at 2.5%, which marks the biggest increase since February 2012.

Most of the gain in April came from higher prices for final demand services, which rose 0.4%. Meanwhile, final demand goods rose 0.5% last month, or 0.3% when excluding foods and energy. The report added that core producer prices advanced 0.4% in April after remaining flat in March, which was a 0.2% bigger gain than forecasted.

Higher producer prices reflect stronger inflationary pressures, which may support the Federal Reserve’s case for tightening its monetary policy. The CME Group FedWatch tool, which tracks Fed fund futures prices to measure investors’ expectations of interest rate moves, shows an 83.1% chance of a 0.25% interest rate increase in June. Higher interest rates from the Federal Open Market Committee support the US dollar.

More positive data came today from the US Department of Labor, which published its weekly update for initial jobless claims. 236,000 Americans applied for unemployment insurance benefits in the week ended May 6, which is 2,000 less than the revised number of the previous week. The moving average of four weeks, which displays less volatility, rose 500 to 243,000 applications, while analysts had expected initial claims to rise to 245,000 last week.

EUR/USD traded at 1.0865 as of 16:50 GMT on Thursday from 1.0843 at 12:30 GMT, the pair’s lowest level since April 24. EUR/USD began trading today at 1.0865. GBP/USD declined to 1.2873 after starting the day at 1.2928. GBP/USD touched 1.2853 at 12:10 GMT, a rate last seen on May 4.

The Dollar Index, which tracks the performance of the US currency against a basket of its major peers, rose to 99.65 as of 16:45 GMT today from 99.66 yesterday.

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