By Anneken Tappe

Russian ruble rallies on rate hike

The U.S. dollar regained its strength on Friday following some favorable economic data, including a buoyant consumer sentiment read.

After starting the session on the defensive, the popular ICE U.S. Dollar Index climbed 0.3% to 94.806. For the week, the gauge is looking at a 0.6% drop so far, its worst performance in three weeks, according to FactSet.

Sentiment for September climbed to 100.8, compared with expectations of only 97, marking its second highest peak since 2014 (http://www.marketwatch.com/story/americans-bullish-on-economy-toward-end-of-summer-consumer-sentiment-shows-2018-09-14).

Retail sales (http://www.marketwatch.com/story/retail-sales-grow-by-smallest-amount-in-six-months-but-spending-primed-to-rebound-2018-09-14) slowed to 0.1% in August, undercutting expectations of 0.3%, but industrial production (http://www.marketwatch.com/story/us-industrial-production-up-for-third-straight-month-on-strength-in-autos-2018-09-14) beat the consensus, expanding 0.4% in the same month, versus the 0.3% forecast.

The buck's earlier weakness was attributed to Thursday's softer-than-expected inflation read (http://www.marketwatch.com/story/consumer-inflation-climbs-again-in-august-cpi-shows-but-pace-of-increase-slows-2018-09-13) in the U.S., as well as a less dovish than expected ECB (http://www.marketwatch.com/story/ecbs-draghi-delivers-an-ever-so-slightly-hawkish-performance-2018-09-13) and Bank of England (http://www.marketwatch.com/story/bank-of-england-leaves-rates-on-hold-sees-risks-for-global-growth-2018-09-13) lifting growth forecasts.

The euro and British pound both traded in earlier strength as the dollar climbed higher and slipped to $1.1661 and $1.3084 respectively.

This week's central bank bonanza continued in Russia Friday, where the central bank raised its key interest rate -- the one-week repo rate -- to 7.5%, surprising market participants who had expected rates to be on hold at 7.25%.

The ruble rallied in response versus the greenback, however giving back some of its gains as the buck strengthened. One dollar last bought 67.013, down from 68.258 ruble late Thursday in New York.

Russia's inflation read 3.1% on an annualized basis in August, its highest rate in a year but below the central bank's 4% target, the Brown Brothers Harriman strategists wrote.

"More importantly, the U.S. announced another round of tougher sanctions (https://www.wsj.com/articles/washingtons-sanction-push-sinks-russian-bonds-1536840001). Recall that inflation spiked up to 175% in 2015 as Ukraine-related sanctions hit and the ruble plunged," they said. "The bank was forced into an aggressive tightening cycle, hiking rates from 5.5% to 17% in less than a year. We believe a similar dynamic will be seen in the coming months."

(END) Dow Jones Newswires

September 14, 2018 10:47 ET (14:47 GMT)