The US dollar staged an improbable rally on Friday as investors shrugged off a weak report on US economic growth and got a lift from apparent Asian buyers and a robust report on the housing market.
The euro fell to US$1.2094 at 10pm GMT from US$1.2205 late on Thursday in New York. The greenback rose to ¥117.24 after ¥116.39 on Thursday.
In early trade the dollar was pushed lower by news that US economic growth had hit the brakes in the final quarter of last year, with GDP easing to a 1.1 percent growth rate from an annualized 4.1 percent in the previous quarter.
But Craig Russell, senior foreign exchange dealer at Alaron, said there appeared to be demand from Asian central banks. The Bank of China often bids the US dollar higher to protect the value of its large Treasury holdings, he said.
The dollar also drew support from news from the US Commerce Department that sales of new homes in the US increased a surprising 2.9 percent last month to a seasonally adjusted annual rate of 1.269 million.
Kathy Lien, chief strategist at Forex Capital Markets, said the US dollar had a choppy ride and got a bounce after US Treasury Secretary John Snow called the weak GDP report an anomaly.
"He cautioned against paying too much attention to the GDP report since he expects upward revisions in the months to come and ultimately he feels that the economy's performance is still sound," Lien said.
"This left the market with the impression that today's release was an outlier, especially since the personal consumption and GDP price index figures were stronger than expected," she said.
Lien said the GDP report did not shift forecasts for the US Federal Reserve to raise rates next Tuesday by another quarter-point, and possibly again in March.
"What is most important is that despite the weaker GDP number, expectations for a March rate hike is still intact and in fact, ticked higher modestly," she said.
"There is now an over 70 percent probability that we will see 4.75 percent rates by the end of the first quarter," Lien said.
Other economists also warned against reading too much into the GDP slowdown, which was impacted by Hurricane Katrina and unusual factors on auto sales and defense spending.
"Don't be fooled by the seemingly soft 1.1 percent annualized print on headline US GDP," said Beata Caranci, economist at TD Bank.
"Sure, consumer spending only expanded by a matching 1.1 percent, marking the weakest performance in more than four years. But, this is miles ahead of what the monthly tracking for spending had initially revealed," she said.
In late New York trade, the US dollar stood at 1.2842 Swiss francs from SF1.2700 on Thursday.
The pound was being traded at US$1.7681 after US$1.7805 late on Thursday.
RSS