US dollar sinks on anemic US growth figures

The US dollar remained on the back foot going into the weekend after data showed on Friday that the US economy had grown by much less than expected in the second quarter.

The euro rose to US$1.2759 around 2100 GMT, from US$1.2698 late on Thursday in New York.

The dollar dipped to ?114.63, from ?115.77.

US Commerce Department figures showed that annualized growth was just 2.5 percent in the three months to last month, less than half the 5.6 percent in the first quarter and well below forecasts for a more modest dip to 3.0 percent.

The weak numbers fueled talk that the Federal Reserve could call off a long-running campaign of interest rate increases on Aug. 8, which would diminish the US dollar's appeal against other major currencies.

"There is no question that market sentiment is dollar-negative going into the weekend," said Michael Woolfolk at the Bank of New York.

But other pundits said there is still a chance the Fed could opt for one more precautionary rate hike, given concerns over inflation.

Core consumption expenditures (PCE) data -- the Fed's preferred inflation measure -- rose to 2.9 percent in the second quarter, well above the central bank's comfort level of 1-2 percent.

Fed Ben Bernanke, however, said last week he believed the slowdown in growth would cause inflation to moderate in the months ahead.

The yen remained strong on speculation that China could soon announce another revaluation of its currency.

The Japanese currency has garnered some support over the last day or two, despite some weak economic data, as the pressure on China from US lawmakers to revalue the yuan has intensified.

Meanwhile, the Australian dollar reached 10-week highs against its US counterpart to leave the greenback worth 1.3034 to the Aussie in late trade.

The Australian dollar has been gaining fast since strong inflation figures on Wednesday all but confirmed that the Reserve Bank of Australia will raise interest rates next week.

The pound was also close to seven-week highs against the dollar as market players looked ahead to next week's Bank of England interest rate decision.

Though British central bank's Monetary Policy Committee is broadly expected to leave rates unchanged, there is a small chance that its members could opt for a hike given recent strong data.

At 2100 GMT, the pound bought US$1.8631 compared to US$1.8576 late on Thursday.

The US dollar was also changing hands at 1.2326 Swiss francs from 1.2385.