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Dollar extends gains on rate hike prospects

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Shutterstock photo - - The dollar traded largely higher against most major currencies on Friday amid expectations the Federal Reserve next week will trim its bond-buying program and release a monetary policy statement possibly hinting at when benchmark interest rates may rise.

In U.S. trading on Friday, EUR/USD was up 0.23% at 1.2952, mainly as investors felt the greenback had risen too high against the single currency in recent sessions and sold the dollar for profits.

The euro has come under pressure in recent sessions on expectations for European and U.S. monetary policies to diverge.

While the European Central Bank recently cut interest rates and announced plans to purchase asset-backed securities to shore up the economy, the Federal Reserve is expected to close its bond-buying program next month and begin hiking interest rates in 2015, likely sooner than once anticipated.

The Fed will meet next week to review monetary policy, and markets are hoping for hints as to when benchmark interest rates will rise.

The Fed is also expected to cut its quantitative easing program to $10 billion in Treasury and mortgage-backed securities purchased each month from $15 billion before closing the program in October.

Still, by Friday investors felt the greenback's gains over the single currency grown somewhat frothy, and sold the U.S. currency for profits despite upbeat U.S. data.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to a 14-month high of 84.6 this month from 82.5 in August. Analysts had expected the index to rise to 83.3 in September.

The report came after official data showed that U.S. retail sales rose 0.6% last month, in line with expectations. Retail sales for July were revised to a 0.3% gain from a previously estimated flat reading.

Core retail sales, which exclude automobiles, increased by 0.3% in August, also in line with market expectations and growing at the fastest pace since April. July's figure was revised to a 0.3% gain from a previously estimated 0.1% rise.

The dollar was up against the yen, with USD/JPY up 0.23% at 107.34, and down against the Swiss franc, with USD/CHF down 0.22% at 0.9340.

The yen remained in negative territory after BoJ Governor Haruhiko Kuroda said Thursday monetary authorities would be prepared to immediately loosen monetary policy or implement other measures if its 2% inflation target becomes difficult to meet.

Earlier this week official data showed that Japan's second quarter economic contraction was larger than initially estimated, and another report showed that the country's current account surplus fell short of expectations in July.

The lackluster data indicated the economy is struggling to gain momentum and fuelled expectations for more stimulus from the Japanese central bank.

The greenback was down against the pound, with GBP/USD up 0.12% at 1.6258.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.51% at 1.1093, AUD/USD down 0.63% at 0.9043 and NZD/USD down 0.42% at 0.8148.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.09% at 84.39. offers an extensive set of professional tools for the financial markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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