The dollar rallied against the yen and Swiss franc on Monday as strong US consumer spending data reduced fears of another US recession. US consumer spending, which accounts for about 70 percent of economic activity, rebounded strongly in July from June. Weak pending sales of existing homes, however, showed the housing sector remains soft.
"This morning's US economic reports will make Fed officials feel slightly better about the outlook for the US economy but the slower rise in incomes relative to spending means that they cannot take their hands off the 'go' button," said Kathy Lien, director of currency research at GFT Forex. Federal Reserve Chairman Ben Bernanke last week opted to postpone a decision on more stimulus, giving the central bank more time to assess the state of the US economy.
The Fed's move to leave the door open for more measures heightens the focus on upcoming economic data, including the closely watched August US employment report on Friday. There was plenty of risk appetite on Monday, with stock indexes around the world rising after news of a merger between Eurobank and Alpha Bank, the second- and third-largest banks in Greece.
The deal suggested Europe was working through its financial problems and heading in the right direction, analysts said. "With reports of possible bank mergers in Greece and ongoing rhetoric from European leaders attempting to talk down speculation of further contagion, concerns regarding the sovereign debt crisis have eased in the interim with traders going back on the hunt for yields early in the week," said Michael Boutros, currency analyst for DailyFX.com in New York.
The dollar was up 1.2 percent to 0.8161 franc on electronic trading platform EBS while the euro last traded up 1.4 percent to 1.18500 francs. At the peak, the euro was its highest against the franc since July 8, while the dollar was at is highest since July 22. As well as the move away from safe-haven flows, the franc has been under broad pressure since Friday when Swiss bank UBS threatened to charge clients a fee on deposits, aiming to discourage them from using some accounts to hoard the safe-haven currency because of financial market volatility.
New York City, meanwhile, was back to business after Hurricane Irene. Higher Treasury yields favoured the dollar against the yen. Against the yen, the dollar traded up 0.2 percent at 76.83 yen on EBS, holding above the record low plumbed this month at 75.941 yen. The euro edged higher against the dollar, rising 0.1 percent to $1.45138, with support seen around the 100-day simple moving average at $1.43666 on EBS. At the euro peak it was the highest against the dollar since July 5.