By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar rose on Friday, extending gains after upbeat data on U.S. personal income and spending as well as manufacturing in the U.S. Midwest, with market participants also taking profits on the currency’s short dollar positions this month.

The dollar index was down 2.4% for the month of April, its worst monthly performance since July 2020.

Data showing a 4.2% rebound in U.S. consumer spending in March, amid a 21.1% surge in income as households received additional COVID-19 relief money from the government, supported the dollar. That led to a 0.4% rise in the core personal consumption expenditures (PCE) index, compared with a gain of 0.3% the previous month.

“This will be the third time this year that the PCE reading has beaten expectations,” Adam Corbett, currency analyst, at Cambridge Global Payments, said in a research note after the data.

“Fed Chair Jerome Powell remained firm on the Fed’s interest rate path and QE (quantitative easing) program on Wednesday, leaving traders with the uncomfortable feeling inflation could run away – and run away quickly.”

Similarly, the dollar also gained after the Chicago Purchasing Management Index (PMI) showed a reading for April of 72.1, the highest in almost four decades.

In mid-morning trading, the dollar index was set to end the week flat, although still down 2.4% for the month as a whole. It was last up 0.4% at 91.007.

“This current strength in the dollar is likely a pivot to that seasonal trend that we tend to see in May and June,” said Mazen Issa, senior currency strategist at TD Securities in New York.

“Basically on the last day of Q1, we saw the dollar turn around to the softer side and continued unabated since, despite strong payrolls at the start of April. Seasonal trends suggest that April is one of the weaker months for the dollar.”

(Graphic: Dollar heads for fourth weekly loss: https://fingfx.thomsonreuters.com/gfx/mkt/xegvbxrqovq/DXY.png)

The Canadian dollar climbed to a more-than three-year high of C$1.2268 per greenback on Friday, on track for a 1.6% weekly gain that would be its biggest since the start of November. The U.S. dollar was last flat at C$1.2280.

After the Fed’s policy meeting on Wednesday, Powell acknowledged the U.S. economy’s growth, but said there was not yet enough evidence of “substantial further progress” toward recovery to warrant a change to its ultra-loose monetary settings.

The Fed’s dovishness was in marked contrast to the Bank of Canada, which has already begun to taper its asset purchases. Canada’s commodity-linked loonie got additional support from a surge in oil to a six-week peak, along with higher lumber prices.

Rising commodity prices earlier supported the Australian dollar, but in New York session it was down 0.3% at US$0.7740 because of broad dollar strength.

The euro traded 0.4% lower at $1.2071. It was up nearly 3% for the month versus the dollar and down 0.2% on the week.

The dollar also rose against the yen, up 0.1% at 109.05 <JPY=EBS>, rising 1% for the week.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ritvik Carvalho, Editing by Hugh Lawson and Mark Heinrich)