Dollar slides on positive US data

Saturday June 27, 2009

LONDON: The dollar wilted against the euro on Friday in the face of positive US economic data that encouraged investors to seek out currencies considered riskier that the greenback.

The euro in late-day trade was at 1.4054 dollars against 1.3986 late Thursday.

The dollar was meanwhile trading at 95.09 yen, down from 95.95 on Thursday.

Investor appetite for the euro increased after the Commerce Department said US consumer spending posted a 0.3 percent gain in May compared to April.

The May uptick in personal spending -- which accounts for two-thirds of US economic activity -- followed a revised flat reading for April and a 0.3 percent decline in March.

Personal incomes jumped 1.4 percent in May, the strongest gain in a year, mostly on the back of the 787-billion-dollar stimulus package launched by President Barack Obama in February, the Commerce Department said.

The hefty increase in incomes widely topped the 0.3 percent gain expected by analysts.

On Thursday the US central bank, the Federal Reserve, trimmed the size and changed the terms of some of its lending facilities, citing improvement in financial conditions and reduced usage of such programs.

"The Fed's decision... is in line with the improvement in financial markets," said analysts at BNP Paribas bank.

"This will add support to the current risk-seeking environment," the bank said, adding that the euro was set to move up to the 1.4360-dollar level, a peak last reached in early June.

Further support for currencies other than the dollar came from this week's US GDP data, which was better than expected.

The US economy shrank at a 5.5 percent pace in the first quarter, the government said Thursday in a report offering a glimmer of hope for recovery from prolonged recession.

The Commerce Department's final estimate of gross domestic product (GDP) was not as bad as last month's estimate of a 5.7 percent annualized decline in output.

"The data raises hopes that the (US) economy has reached a bottom and that second-quarter data will show further improvement in GDP," said CurrenciesDirect analyst Phil McHugh.

Rising global equity and oil markets also encouraged investors to take more risk, dampening demand for the dollar.

"Gains in stock markets and crude oil prices caused risk appetite to revive among investors, which lifted higher-yielding currencies" such as the euro, Yuzo Sakai, a forex manager at Tokyo Forex and Ueda Harlow, told Dow Jones Newswires.

In London trade on Friday, the euro was changing hands at 1.4054 dollars against 1.3986 dollars late on Thursday, 133.88 yen (134.22), 0.8523 pounds (0.8546) and 1.5237 Swiss francs (1.5301).

The dollar stood at 95.09 yen (95.95) and 1.0824 Swiss francs (1.0937).

The pound was at 1.6481 dollars (1.6368).

On the London Bullion Market, the price of gold climbed to 942 dollars an ounce at the fixing from 937.25 dollars an ounce late on Thursday.


(Reuters)