(Recasts, adds comments, changes byline and dateline,
previously LONDON)
By Vivianne Rodrigues
NEW YORK, April 25 (Reuters) - The dollar headed for its
best monthly performance in 2-1/2 years against a basket of
major currencies on Friday, boosted by a growing view the
Federal Reserve may stop cutting interest rates.
Having been pessimistic on the U.S. economic outlook for
some time, investors are now embracing upside data surprises,
analysts say.
The perceived odds of the Fed keeping its benchmark interest
rate unchanged at 2.25 percent at its meeting next week is now
about 26 percent, futures trading shows <FEDWATCH>. Just over a
week ago, futures were evenly split between a 25 and a 50 basis
point cut.
Meanwhile, traders are paring bets the next move by the
European Central Bank would be a hike in benchmark interest
rates.
"Rate expectations are really shifting," said Mark Meadows,
a market analyst at Tempus Consulting in Washington. "While
most people now believe the Fed is about to end its easing
cycle, a growing number of investors believe the ECB may have
to start cutting rates really soon. And the dollar is the main
beneficiary of that reversal."
The dollar index, which tracks its performance against a
basket of major currencies, hit a one-month high of 73.030
<.DXY>, putting it on track for its best monthly performance
since November 2005.
The euro fell as low as $1.5555, its weakest since April 3
<EUR=>, a drop of around 0.5 percent on the day and on track
for its biggest monthly decline in nearly a year.
Gains in the dollar this week were also supported by
economic data showing signs of resilience in some areas,
including employment. On Thursday, a government report showed
the number of U.S. workers filing initial claims for jobless
benefits unexpectedly fell last week.
Investors will look for further clues on the health of the
U.S. economy and the outlook for Fed rate cuts from the
Reuters/University of Michigan consumer sentiment survey
released at 9:55 a.m. (1355 GMT).
In contrast to slightly stronger U.S. data, the Ifo German
business sentiment index this week showed the biggest monthly
fall since September 2001 on Thursday, taking the April
headline number to a two-year low.
Together with a soft euro zone manufacturing survey, the
data knocked the euro off record highs above $1.60 set at the
start of the week.
"Europe is really not insulated and its economy is
beginning to show signs of a slowdown," said Meadows. "The
truth is that there was not much of a demand to sustain the
euro at $1.60."
The dollar also rallied earlier to a two-month high of
104.81 yen <JPY=>, with the Japanese currency failing to
benefit from news that Japanese core consumer prices rose at
their fastest pace in a decade in March [].
Japanese government bond futures had their biggest one-day
loss in five years, however, with markets starting to price in
a higher chance of a BOJ rate rise before the end of the year.
(Editing by Andrea Ricci)
