FOREX-Dollar rallies on GDP data, hawkish Fed comments
(Recasts, adds comments, byline)
* Dollar rallies broadly on hawkish Fed comments
* U.S. bond yields rise
* 1st quarter U.S. GDP growth revised upward
NEW YORK, May 29 (Reuters) - The dollar rallied on Thursday after a report showed the U.S. economy grew in the first quarter at a faster pace than previously estimated and as hawkish Federal Reserve comments boosted expectations for an interest rate increase this year.
Dallas Fed President Richard Fisher said on Wednesday the Fed -- the U.S. central bank -- could increase benchmark rates "sooner rather than later" should inflation expectations worsen. The comments prompted a jump in short-dated U.S. Treasury yields.
Demand for the greenback accelerated after the government said the U.S. economy grew at an upwardly revised 0.9 percent in the first quarter, slightly better than previously estimated. For details see [ID:nN28432824].
"The mix of growth in the first quarter looks healthier," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto. "It maintains the bullish bias for the dollar that we saw get underway yesterday following the hawkish comments from Fisher yesterday evening."
In New York trading, the euro was last 0.7 percent lower at $1.5531 EUR=. The dollar last traded 0.6 percent higher versus the yen at 105.24 JPY=.
"The data should help the dollar trend higher," said Nick Bennenbroek, a currency strategist at Wells Fargo in New York.
The dollar rose half a percent on the day to 72.885 against a basket of six currencies .DXY.
Two-year Treasury yields US2YT=RR surged earlier to 2.783 percent, its highest since the start of the year, after Fisher's comments [ID:nN2852973].
"We've seen a big uptick in U.S. yields," said David Pais, currency strategist at Citigroup in London. "It's very much U.S.-euro yield differentials that is driving euro/dollar lower."
The euro also lost ground after figures showed the first rise in Germany's seasonally adjusted jobless total in over two years [nBAE001233].
INFLATION WORRIES
Data on Wednesday showing U.S. durable goods orders fell by a smaller-than-expected 0.5 percent last month bolstered a view that the Fed may have left its aggressive campaign to ease monetary policy behind it for now after slashing target borrowing costs to 2 percent.
The hawkish comments from Fisher and Minneapolis Fed President Gary Stern, who said that the Fed must quit its monetary easing campaign at some point, suggested that inflation risks were not far away from policymakers' minds.
U.S. short-term interest rate futures completely priced out on Thursday any perceived chance of a Fed rate cut in June. Fed funds futures showed a 100 percent implied chance the Fed will hold its fed funds target rate steady at 2.0 percent in June. (Additional reporting by Nick Olivari and Steven C. Johnson in New York and Veronica Brown in London; Editing by James Dalgleish)
