The greenback gains as strong consumer data raises expectations that interest rates could rise sooner rather than later.
NEW YORK (Reuters) -- The U.S. dollar jumped to a two-month high against the euro Friday after surprisingly strong consumer data boosted expectations the Federal Reserve would raise interest rates sooner rather than later.
Retail sales posted the largest advance since August last month, while consumer sentiment improved sharply in early December. The reports stoked optimism about a recovery in the world's largest economy and pushed the euro below $1.46 for the first time since early October.
"The much stronger-than-expected retail sales number has rekindled expectations of a rate hike sooner than anticipated," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston. "It does appear that the U.S. consumer has been a little bit more resilient than anticipated."
The prospect of prolonged low U.S. interest rates has undermined the dollar in recent months as investors borrow in the low-yielding greenback and reinvest the money in stocks, commodities and higher-yielding currencies in search of returns. The euro hit a 16-month high above $1.51 in November.
The euro, which touched a 16-month high above $1.51 in November, hit a trough of $1.4587 on Friday, according to Reuters data, and was last down 0.8% at $1.4619.
That capped a difficult week for the euro zone currency, which was buffeted by worries about the fiscal health of Greece after Fitch cut its credit rating. The euro was down 1.6% this week, its worst weekly slide in over a month.
A member of the European Central Bank's Executive Board said euro zone governments risked destroying confidence in their economic management by running up unsustainable deficits and public debt.
The dollar rose 1.1% to ¥89.15. Sterling fell 0.3% to $1.6233 but gained on the euro and yen after Moody's Investors Service said Britain's top-notch sovereign rating was not under threat even though UK fiscal health concerns remain
The top sovereign credit rating of the United States is also not under threat of a downgrade right now, Moody's said.
The stronger-than-expected U.S. data also led to a breakdown in the inverse relationship between the dollar and risky assets that has existed for much of the past year. Stocks mostly advanced, with the Dow Jones industrial average at a fresh high for the year, while technology shares were flat.
Good data has tended to pressure the greenback in recent months as investors took on riskier, higher-yielding investments and cut demand for the safe-haven U.S. currency.
"I think the risk appetite trade we've been talking about for months is breaking down and I think the correlation between positive U.S. data and dollar strength is going to take hold," said Melvin Harris, a strategist at Easy Forex in New York.