Dollar gains on data, yen up on U.S. political uncertainty

NEW YORK (Reuters) - The dollar rose against most currencies on Friday, bolstered by solid U.S. economic data that further supported consensus expectations that the Federal Reserve will raise interest rates at next week’s monetary policy meeting.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

“The gains in the dollar were a positive reaction to the data,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “The reports show that the dollar’s fundamental backdrop remains strong.”

U.S. industrial production surged in February, boosted by strong increases in output at factories and mines, while a consumer sentiment survey by the University of Michigan showed a rise in the overall index for March.

“A rate hike of 25 basis points on Wednesday is almost a foregone conclusion,” said James Chen, head of research at in Bedminster, New Jersey.

Given the high expectations for a 25 basis-point rate hike, investors will be focused be on the Fed’s outlook for further hikes in 2018 and beyond, he added.

The dollar, however, fell to a more than one-week low against the yen, undermined by speculation that more top Trump administration officials could be replaced and concerns U.S. trade tariffs could hurt the global economy.

These U.S.-centric factors have rattled markets in recent days, pushing the dollar lower and leaving the yen as the main beneficiary.

U.S. President Donald Trump has decided to replace his national security adviser, H.R. McMaster, the Washington Post reported on Thursday. At the same time, the New York Times reported U.S. Special Counsel Robert Mueller had issued a subpoena for documents related to Trump’s businesses, including some concerning Russia.

Earlier this week, the U.S. currency took a hit after Trump dismissed Secretary of State Rex Tillerson as investors grew increasingly nervous about the direction U.S. policy might take following a series of departures by key staff members.

In late trading, the dollar was down 0.2 percent at 106.08 yen after falling as low as 105.61 yen, the lowest since March 7.

The dollar index was up 0.1 percent at 90.223. It has been on the defensive for much of the week amid the shake-up inside Trump’s administration and as next week’s Federal Reserve policy meeting comes into focus.

The euro fell 0.2 percent to $1.2284, with little to drive the single currency higher.

It has struggled to make much headway since rallying in January and faced further headwinds after the European Central Bank last week cautioned investors not to expect a paring back of monetary stimulus any time soon.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Thomas and Dan Grebler