Dollar set for best January since 2009 as spending tops forecast

The dollar (NYBOT:DXH14) headed for its best January since 2009 versus a basket of major peers as consumer spending climbed more than forecast in December, adding to evidence the U.S. economy is growing.

The yen (CME:J6H14) rose, swelling monthly gains versus all 16 of its major counterparts, as Japanese equities fell and data showing accelerating inflation reduced the case for further monetary easing by the Bank of Japan. The euro (CME:E6H14) declined after a report showed inflation in the region unexpectedly slowed in January, adding to the argument for European Central Bank policy makers to cut interest rates when they meet next week. New Zealand’s dollar dropped with South Africa’s rand, extending an emerging- markets rout that began Jan. 23.

“The risks to the dollar are skewed to the upside,” Eimear Daly, head of market analysis at Monex Europe Ltd. in London, said before the data. “It seems the Fed wants to get rid of its quantitative easing at this stage and there is little that will put them off their course of $10 billion of tapering each month.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, added 0.2% to 1,032.34 at 9:12 a.m. in New York for its fourth straight day of gains. It is up 1.3% this month, compared with a 5% gain in January 2009.

The dollar rose 0.3% to $1.3513 per euro, pushing monthly gains to 1.7%, the most since March. The yen strengthened 0.5% to 102.26 per dollar, headed for a 2.9% monthly advance that is the biggest since April 2012. It appreciated 0.8% to 138.14 per euro, having strengthened 4.6% since Dec. 31.

U.S. Recovery

Household purchases, which account for about 70% of the economy, rose 0.4%, after a 0.6% gain the prior month that was larger than previously estimated, Commerce Department figures showed today in Washington. The median projection of 81 economists in a Bloomberg survey called for a 0.2% rise. Incomes were unchanged, pushing the saving rate to the lowest level in almost a year.

The U.S. economy expanded at an annual pace of 3.2% in the fourth quarter, matching the median forecast in a Bloomberg survey, Commerce Department figures showed yesterday.

The Fed said on Jan. 29 it will trim its monthly bond buying to $65 billion from $75 billion, after cutting it from $85 in December.

Westpac Banking Corp.’s U.S. data surprise index reached the highest since June this month, leading the bank’s New York- based chief currency strategist for the northern hemisphere, Richard Franulovich, to write “the recent improvement in U.S. growth sentiment is living on borrowed time.”

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