The US dollar soared against major currencies on Friday on growing speculation that the Federal Reserve could soon begin to rein in its bond-buying programme and after data showed US consumer sentiment hit an almost six-year high in early May.
The Dow Jones Industrial Average and benchmark Standard and Poor’s 500 stock index surged to new closing highs in a rally that has pushed both indices this year up 17 per cent.
Major European equity indexes climbed to highs last seen five years ago or more, helped by a rally in automakers’ shares, which rose on signs of a revival in domestic sales.
Stocks on both sides of the Atlantic were boosted after a survey of US consumer sentiment in early May rose more than economists expected, with more Americans giving favourable views about their financial prospects.
In a separate report by an industry group, a gauge of future economic activity also suggested the expected U.S. slowdown will be temporary, with the index rising in April to a near five-year high. The two reports were encouraging after a raft of data on Thursday had suggested US economic growth is cooling.
The dollar’s strength was largely attributed to the euro, which fell to a six-week low on talk the European Central Bank could set negative deposit rates, a move that effectively would make banks pay to park their cash overnight with the ECB. The ECB had no immediate comment.
The US dollar index, which measures its value against a basket of six major currencies, rose to 84.371, its highest in nearly three years. Around midday in New York, the dollar index was up 0.81 per cent at 84.266.
The euro fell 0.42 per cent to $1.2827, while the dollar hit a four-and-a-half-year high versus the Japanese yen, up 0.93 percent at 103.19 yen. Few fear that the dollar rally will lose steam anytime soon.
A measure of global equity activity, MSCI’s all-country world stock index, rose 0.22 percent in a rocky session as it was tugged downward by emerging markets.
The Dow Jones closed up 121.18 points, or 0.80 per cent, at 15,354.40. The S and P 500 index rose 15.65 points, or 0.95 per cent, at 1,666.12. The Nasdaq Composite index gained 33.72 points, or 0.97 per cent, at 3,498.97.