By Sinéad Carew and Harry Robertson
NEW YORK/LONDON (Reuters) - The dollar rose on Thursday as U.S. Treasury yields increased and investors bet on a relatively hawkish Federal Reserve, while the British pound fell as the UK government unveiled its latest budget update.
The greenback has been falling in recent weeks as inflation data and Federal Reserve commentary implied that it could soon slow the pace of its interest rate hikes.
But at an event on Wednesday, St. Louis Federal Reserve President James Bullard showed a graphic suggesting that even dovish assumptions would require rates to rise to at least around 5%, while stricter assumptions suggest rates above 7%. Rates are currently in the 3.75%-to-4% range after a spate of aggressive hikes.
"We had a short covering euro rally and dollar sell off that's probably run its course now. We think the dollar runs higher from here given the Fed is still the most hawkish central bank in the G10," said Erik Nelson, macro strategist at Wells Fargo (NYSE:WFC) Securities.
Yet the dollar climbed on Thursday after U.S. retail sales data for October, released on Wednesday, came in stronger than expected.
The euro was last down 0.56% against the dollar at $1.0337 after falling as much as 0.86% earlier in the session. Earlier this week it had briefly touched $1.048, its highest level since July.
The dollar index, which measures the currency against six major peers, was recently up 0.64% at 106.957. After hitting a 20-year high in late September the index had lost more than 8% when it touched its most recent intraday low on Tuesday.
Simon Harvey, senior FX analyst at Monex Europe, said the dollar was consolidating as investors try to work out the direction of the U.S. economy.
"The positive consumption data suggests we don't have a hard landing coming (for the economy). But is that positive for risk assets or will it embolden the Fed to go harder?" he said.
The British pound, which was already trading lower, fell slightly as UK finance minister Jeremy Hunt announced tax increases and tighter public spending in an effort to restore the country's economic reputation and cool inflation.
It was last down 0.95% at $1.18 after earlier falling as much as 1.25% in a move that one analyst said was largely driven by sentiment about the dollar. The euro was up 0.44% against the pound at 87.58 pence.
Bullard's comments came after San Francisco Fed President Mary Daly - until recently one of the most dovish officials - on Wednesday added to doubts about a change of direction from the Fed by saying a pause was off the table.
The greenback was last up 0.68% against the Japanese yen on Thursday to 140.4950 after falling earlier in the day. At its peak for the session so far it had risen 0.83%.
Currency bid prices at 10:16AM (1516 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.0337 $1.0395 -0.56% -9.07% +$1.0407 +$1.0306
Dollar/Yen 140.4950 139.5500 +0.68% +22.04% +140.7050 +138.8800
Euro/Yen 145.25 145.02 +0.16% +11.46% +145.3600 +144.4600
Dollar/Swiss 0.9529 0.9452 +0.83% +4.47% +0.9536 +0.9435
Sterling/Dollar $1.1800 $1.1913 -0.95% -12.75% +$1.1957 +$1.1765
Dollar/Canadian 1.3359 1.3328 +0.25% +5.67% +1.3400 +1.3314
Aussie/Dollar $0.6655 $0.6741 -1.28% -8.45% +$0.6751 +$0.6635
Euro/Swiss 0.9852 0.9817 +0.36% -4.99% +0.9857 +0.9808
Euro/Sterling 0.8758 0.8720 +0.44% +4.26% +0.8769 +0.8696
NZ $0.6077 $0.6146 -1.16% -11.24% +$0.6168 +$0.6065
Dollar/Norway 10.1480 9.9930 +1.63% +15.28% +10.1875 +10.0060
Euro/Norway 10.4935 10.3930 +0.97% +4.80% +10.5064 +10.3918 Dollar/Sweden 10.6269 10.4753 +1.00% +17.84% +10.6517 +10.4590
Euro/Sweden 10.9814 10.8728 +1.00% +7.30% +10.9890 +10.8809