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Dollar rebounds as investors foresee U.S. economy gaining steam

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(Bloomberg) — The dollar jumped from a four-month low on speculation that the U.S. economy will rebound from a sluggish first quarter.

The currency climbed by the most in five weeks, snapping a four-day loss against the euro, before the release of U.S. housing and manufacturing data later this week.

Improving indicators would bolster the case for the Federal Reserve to raise interest rates for the first time in more than a decade.

“There’s further to go in the positive-dollar trend,” said Ken Dickson, the Edinburgh-based investment director for currencies at Standard Life Investments Ltd., which oversees $384 billion.

“The dollar will recover” from recent losses as the Fed approaches liftoff, although gains against the euro will moderate in magnitude and pace, he said.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, rose 0.7 percent to 1,158.17 as of 12:12 p.m. in New York. It touched 1,149.06 on Friday, the lowest since January, as weaker-than-expected economic reports added to concern U.S. growth was too fragile for the Fed to increase its main rate this year.

The index has fallen for the past five weeks, its longest decline since October 2013.

The U.S. currency rose 0.9 percent to $1.1347 per euro, reaching the biggest gain since April 9. It climbed 0.5 percent to 119.83 yen.

The Fed will release minutes of April’s Federal Open Market Committee meeting on Wednesday, which may include clues about when the central bank may increase interest rates for the first time since 2006.

“The market hasn’t changed its overall bullish dollar bias,” said Vassili Serebriakov, a New York-based foreign- exchange strategist at BNP Paribas SA. While “valuations are becoming a bit more attractive,” the outlook for the dollar is cautious this week, he said.

Trimming Bets 

The greenback rose 21 percent from July to April on speculation the Fed was moving closer to raising borrowing costs, contrasting with the European Central Bank and other global counterparts that were easing policy.

The euro was weighed down by concern that Greek banks may be pushed toward insolvency if the government and European leaders fail to reach an agreement to bail out the indebted nation.

“This could be the start of a more meaningful rebound in the dollar,” said Adam Myers, the European head of foreign-exchange strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “The data’s going to improve quite quickly in the second quarter and the Fed will still tighten as planned in the third quarter this year.”

Myers predicted that an improvement in the economy would see the dollar climb to $1.1250 per euro in the next few weeks.