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Dollar bulls see slow, steady gains as Fed focuses on rate move

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(Bloomberg) — Dollar bulls haven’t had the easiest few months.

A gangbusters start to 2015 saw the U.S. currency rally to multi-year highs versus the euro and yen. Then, it lost steam, giving way to talk of consolidation, retracement and even a correction.

That phase seems to be complete, with the greenback resuming its ascent. It rose for a second week after a jobs report showed unemployment at a seven-year low. Minutes from the Federal Reserve due July 8 may show policy makers moving closer to their first interest-rate increase since 2006.

“The Fed will raise rates in the back half of the year,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, which oversees $8 billion. “The strength of the dollar will be there, but I don’t think you’re going to get the kind of moves that you had certainly in 2014 or the early part of this year.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, advanced 0.6 percent this week to 1,187.07.

The U.S. currency slipped 0.8 percent to 122.86 yen, and rose 0.6 percent versus the euro to $1.1112, as continued uncertainty on Greece spurred a wave of risk-off sentiment. Greeks head to the polls on Sunday to vote on reforms demanded by creditors.

More Hawkish

Minutes from the Fed’s June 16-17 meeting may shine more light on how policy makers are evaluating economic indicators as they consider when to raise interest rates this year. Economic activity has been expanding moderately while job gains have picked up, officials wrote in a statement after their discussion.

A payrolls report July 2 showed American employers added 223,000 jobs in June, slightly less than forecast. The unemployment rate tumbled to 5.3 percent while average hourly earnings at private employers held at $24.95.

Further surveys due next week on the services and non- manufacturing sectors are forecast to show an uptick in the U.S. economy.

“We’re watching the minutes, which should have a more hawkish tone,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “Some policy makers were probably leaning toward a rate hike in June and those voices will probably be more prominently displayed in the minutes. It should be helpful for the dollar.”

One hiccup may thwart investors keen to re-establish bets on the dollar: Greece. The nation’s future in the euro area is in question and a disorderly exit from the currency bloc holds the potential for the U.S. to keep rates lower for longer.

“There is one major caveat to dollar directionality, and that’s a Greece outcome,” said Jennifer Vail, head of fixed- income research at U.S. Bank Wealth Management, which manages $126 billion. “We’ll see confirmation of strength of the economy, confirmation of Fed liftoff, and that’s going to cause the dollar to outperform the other Group-of-10 currencies going through the rest of the year.”