NEW YORK, June 21: The dollar soared on Friday, hitting its highest levels in a month against the euro and climbing more than 1 percent against other major currencies on a shifting interest rate outlook and growing expectations of a US economic rebound.

Traders began to pay more attention to a long-running theme that has until now afforded the dollar little help; the economic growth differential between the United States and the more lackluster euro zone economy.

The trade which everyone had in the first half of the year is winding down, which is long European bonds and long euros, said Marc Chandler, chief currency strategist with HSBC in New York. Most people believe that (the US) is in a slow recovery period, he said.

Another major element pushing the dollar into new, higher ranges was a shift in market expectations as traders became warier of betting on a deep 50 basis points rate cut at the Federal Reserve’s policy-setting meeting on Wednesday.

A Reuters survey of the dealers who trade directly with the Fed showed a deep division over how aggressive the Fed will be. The poll, conducted on Friday, found the camp expecting a 50 basis points cut edging out those who see a smaller 25 basis points move by 12 to nine.

Analysts expect that any reduction in interest rates will be supportive of growth in the world’s largest economy, eventually helping the dollar even as the yield differential between assets of the United States and their higher-returning European counterparts widens.

As market participants’ view of the Fed outlook became more finely balanced, that helped push the euro down into what some saw as a new, lower trading area against the dollar that could hold for the near term.

Now we are going to see if (the euro is) going to make a new trend, and a lot of people believe that. The euro was in that $1.16 to $1.19 band for so long, and for whatever reason, we are out of it, said Cyrus Whitney, head dealer with Commerzbank in New York.

Over the medium term, however, some analysts believe more monetary easing stoking faster US economic growth may not allow the dollar to shrug off a millstone around its neck: the wide US current account deficit, currently around 5 per cent of gross domestic product.

The dollar might have been oversold and we might be in a consolidation phase.—Reuters