The U.S. dollar rose Monday as signs economic expansion in the U.S. supported the currency while the outlook in Europe continued to discourage investors.

The WSJ Dollar Index, which measures the currency against a basket of 16 others, rose 0.3% to 85.60, wrapping up its largest one-month gain since November 2016. The index has risen 3.5% since its 2018 low.

The greenback gained 0.4% against the euro to $1.2079 Monday and rose 2% versus the euro in April, its best performance against that currency since February 2017.

The dollar strengthened Monday after the Commerce Department said year-over-year inflation hit the Federal Reserve’s 2% target for the first time in over a year in March, a sign of strengthening U.S. inflation pressures that could encourage the Fed to continue lifting interest rates this year. Fed funds futures show the market sees a 48% likelihood that the Federal Reserve will raise interest rates four times this year, up from 32% a month ago, according to CME Group data early Monday. Fed officials projected three increases in 2018 at their meetings December and March.

Higher interest rates tend to attract investors to a currency by offering higher returns.

The euro was pressured lower after a report showed that retail sales in Germany, the region’s largest economy, declined for a fourth consecutive month in March.

Economists have becoming increasingly skeptical about Europe’s ability to continue growing at an above-trend pace. Recent data in areas such as German manufacturing and weaker eurozone inflation have signaled a slowdown. U.K. growth also eased in the first quarter, while recent Japanese economic data has been mixed.

The dollar’s resurgence may be due in part to concerns that the synchronous global growth that characterized the recent economic expansion may be running into obstacles, including concerns about potential trade wars between the U.S. and its trading partners.

Many investors who had favored the euro over the U.S. dollar have become “overextended,” said Brian Taylor, head of foreign-exchange trading at M&T Bank . “People are going to sit in this holding pattern. There’s a lot going on that people have to absorb.”


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