American recovery drives the dollar sharply higher
<p>A woman counts U.S. dollars and Turkish liras at a currency exchange office in Istanbul, Turkey, on Jan. 28, 2014. A woman counts U.S. dollars and Turkish liras at a currency exchange office in Istanbul, Turkey, on Jan. 28, 2014.</p>
NEW YORK (AP) - In the world of currencies, the dollar is starting to look like a safe home in a tough neighborhood.
A strengthening American economy, combined with a gloomy outlook for growth elsewhere, is pushing the U.S. currency sharply higher.
The dollar is up 6.4 percent against a group of major currencies since the start of May and has risen in three of the past four months. The U.S. currency climbed Tuesday to its highest level in six years against the Japanese yen, and it's trading at its highest level in 14 months against the euro.
A continued run-up could mean lower prices for imported cars and crude oil. On the other hand, it could also crimp profits for U.S. companies as their goods become pricier overseas.
A stronger dollar starts with a healthier U.S. economy, and recent news on that front has been mostly good. Construction, manufacturing and autos sales have all posted solid numbers.
Those healthy signs have allowed the Federal Reserve to wind down its economic stimulus. The Fed's next step would be to raise short-term interest rates from their near-zero levels, a move that is expected next year.
Improving growth and the prospect of higher interest rates make the U.S. a more attractive place to invest, prompting people to buy dollars and push up the currency's value.
At the same time, the outlook in Europe and Japan is less encouraging.
"While consumption here is not booming, it is in a better place than it is in Europe or Japan," said Russ Koesterich, chief investment strategist at BlackRock.
A stronger dollar lowers prices for global commodities, which are priced and traded in dollars. As the dollar rises, commodities such as oil become more expensive for overseas buyers, who have to convert their weaker currencies into dollars. That curbs demand, Koesterich said.