* Dollar boosted by view Fed will raise rates in June
* Monetary policy divergence overtakes politics as key
* Focus on U.S. data, strength of economic growth momentum
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, May 12 The dollar traded near a
three-week high on Friday, on track for its strongest week this
year, after strong data bolstered expectations that the Federal
Reserve will raise interest rates again in June.
A rally to 14-year highs for the dollar, inspired by the
election of U.S. President Donald Trump, has fizzled out since
the start of this year. The currency has fallen as much as 5
percent as the pro-growth measures Trump had promised have been
called into question.
But despite a wobble earlier in the week after Trump's
abrupt firing of FBI Director James Comey - which was suspected
to have been driven by political motives - the dollar was up
around 1 percent for the week against its broad index,
after reaching a three-week high on Thursday.
That, said analysts, was partly the result of a broad market
focus shift away from politics and back towards monetary policy.
With investors now pricing in an 80 percent chance of a Fed rate
hike next month, while other central banks continue to ease
policy, that could drive the dollar higher.
Traders will be closely watching U.S. retail sales and
consumer price inflation data for April, due at 1230 GMT.
"It looks like the June hike is largely priced now, so I
think it would take a really terrible number to knock confidence
in that at the moment," said ING's head of currency strategy in
London, Chris Turner.
Data released on Thursday showed new applications for U.S.
jobless benefits unexpectedly fell last week while producer
prices rebounded in April, pointing to a tightening labour
market and rising inflation.
The euro, which hit a six-month high above $1.10 at the
start of the week on relief that centrist Emmanuel Macron had
beaten far-right candidate Marine Le Pen to become French
president, was trading flat at $1.0865, down 1.2 percent
since Monday - its worst week in six.
"Currency investors have flipped to a net short position in
the dollar ... We think that position is vulnerable to an
unwind, as market focus shifts from politically driven risk-on
or risk-off (sentiment) to monetary policy divergence," said BNP
Paribas currency strategist Sam Lynton-Brown, in London.
The dollar was flat at 113.88 yen, down from its
eight-week high of 114.38 yen reached earlier in the week.
The U.S. currency has gained more than 4 percent in the
three weeks since the first round of the France's presidential
elections, with the yen slipping as risk aversion receded.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Masayuki Kitano in Singapore, Editing
by Catherine Evans)