The dollar slipped against the euro for a third week, its longest stretch of losses this year, as figures showed the US economy grew less than expected during the second quarter.
Concern a rebound in growth will be delayed has sent the dollar 1.8 percent lower in the past week and a half against a basket of other major currencies.
The GDP report "underscores the slowdown in the economy, and shows firsthand how much it's weakened," said Thomas Benfer, a director of foreign exchange at Bank of Montreal. "This should pave the way for some more euro gains next week and for a weaker dollar as we go forward." The US currency traded at US$0.8765 per euro, little changed from US$0.8777 late yesterday in New York and 0.6 percent lower for the week. It fell to ?123.54 from Y123.76 yesterday, still up 0.5 percent this week. The euro fell to ?108.25 from ?108.57.
Europe's 12-nation currency briefly slumped against the dollar after it failed to rise to US$0.8823, yesterday's two-month high against the dollar, which traders viewed as a bearish sign for the currency.
"People's conviction the euro will go higher is not that strong, and as soon as one iota of weakness appears, they sell it off," said Marc Chandler, head foreign exchange strategist at HSBC USA. "The weakness of the US GDP numbers wasn't enough to propel it higher." Against a basket of seven other major currencies, the dollar has fallen almost 2 percent since Federal Reserve Chairman Alan Greenspan said last Wednesday that growth isn't likely to rebound until year-end, later than some analysts expected.
Cooling growth may reduce international investors' demand for dollars to buy US financial assets by tarnishing the outlook for company profits and the economy. Fed policy-makers have cut the benchmark lending rate by 275 basis points so far this year, to 3.75 percent, to revive growth.
Greenspan indicated this week that policy makers stand ready to reduce borrowing costs again on further signs of weakness.
Friday's gross domestic product figures bolstered expectations the Federal Reserve will lower interest rates a seventh time this year, decreasing returns on dollar deposits.
The pace of expansion declined last quarter from a revised 1.3 percent in the January-March period, and compares with the 1 percent growth rate forecast in a Bloomberg News survey. Inflation remained in check, with the price deflator up 2.3 percent, less than the 2.4 percent forecast.
Still, some analysts said the dollar's declines are likely to be limited as long as Europe is also in the midst of a slowdown. A French business confidence report today was seen as further evidence of growth is tapering in the 12 nations sharing the euro.
"We've gone about as far as we can go on fears for the US economy," in selling dollars for euros this week, said Michael Malpede, senior foreign exchange analyst at Refco in Chicago. On a technical trading basis, "the euro's resistance [to gains] between the US$0.88 and US$0.90 levels make it a difficult spot for the market to breach without significant news'' in the currency's favor, he said.
An index measuring confidence among 2,000 French executives dropped to a reading of 99 this month, the lowest level since April 1999. Economists polled by Bloomberg News had expected a decline to 101.
Surveys this week also showed German business confidence fell to the lowest level in almost five years in June, and Italian executives were the most pessimistic in two years. This month, leading research institutes in Germany halved their 2001 growth estimates for the region's biggest economy.
Expectations that the European Central Bank might move as soon as next month to fuel growth by cutting interest rates were damped yesterday when statistics showed faster-than-expected money supply growth in June.
The euro's 7.2 percent drop against the dollar this year has come as the ECB, faced with evidence of slowing growth in the region, has lowered its benchmark interest rate once this year -- by 25 basis points to 4.5 percent.
A 6.1 percent rise in euro-zone money supply suggests inflation will accelerate in coming months, and the ECB has cited inflation risks as a reason for not reducing borrowing costs more.
"With the higher M3 growth I don't think the ECB is motivated to move right now, and that's a drawback for the euro," said Malpede at Refco.
Only three of the 31 economists surveyed by Bloomberg News expect the ECB's rate-setting council to reduce borrowing costs from 4.5 percent at its Aug. 2 meeting, while two-thirds said it would do so on Aug. 30.
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