NEW YORK: A much larger than expected first quarter contraction in the US economy sent the dollar lower Wednesday, with investors taking the report as dovish for interest rates.
US treasury yields also sank on the news that the economy shrank 2.9 percent in the January-March period, far greater than the 1.0 percent previously estimated and the sharpest fall since the 2008-2009 recession.
That put a damper on recent speculation that growth is stronger than the Federal Reserve lets on and could drive it to an early increase in interest rates.
That modestly hurt the dollar but helped the euro and, to a small extent, the yen. The impact was not extreme on the greenback, with most economists favouring a strong rebound this quarter and firm growth for the rest of the year.
"We believe this could be lone rogue number and the US could make up for this growth dip throughout the rest of the year," said Kathleen Brooks of Forex.com.
"We don't think that the GDP revision changes anything for the Fed, but it may explain why the core Fed members ... are sticking to their dovish guns in the face of better labor market data and a pick-up in inflation."
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