NEW YORK: The dollar strengthened on Tuesday after a revised third-quarter U.S. gross domestic product report blew past expectations to register the fastest pace of growth in 11 years.
U.S. economic growth in the third quarter was revised up to 5 percent from 3.9 percent. Some tempering of activity, however, is expected in the fourth quarter after non-defense capital goods orders ex-aircraft, a closely watched proxy for business spending plans, was unchanged in November after dropping in October.
"When you get a big revision, the first thing you look at is how much came from personal consumption. And that was very strong, revised higher from 2.2 to 3.2. At first blush you have to say it was a very good revision," said Lou Brien, strategist at DRW Trading in Chicago.
"I don't see this changing the Fed. Incrementally it's better," he said, referring to expectations that the Fed will start tightening monetary policy in mid-2015.
While the U.S. is heading towards raising interest rates, the opposite is expected in the euro zone and Japan, putting the dollar at a distinct yield advantage that has already pushed it to multi-year highs.
After the GDP data, the dollar extended its gains against a basket of currencies to its highest level in over 8 years. The dollar index was trading up 0.36 percent at 90.093, its highest since April 2006.
The euro plumbed fresh 28-month lows against the greenback, trading at $1.2179 for a loss of more than 0.40 percent on the day.
The currency was also buffeted by the Greek Parliament's failure to elect a new president, opening the possibility of early elections in which the anti-bailout Syriza party could take power.
Sterling fell to a 16-month low after third-quarter economic growth slowed in Britain, taking some pressure off of the Bank of England to raise interest rates. Sterling traded at $1.5485, off 0.65 percent.
"GDP is just kind of an early marker for the problems the pound may face next year," said Simon Derrick, head of currency research at Bank of New York Mellon in London.
The dollar reached a fresh 2-week high of 120.74 yen, up 0.56 percent.
The Australian dollar hit a 4-1/2-year trough of US$0.8086 as prices of iron for construction fell in China and after Australia's premier warned of heightened "terrorist chatter" in the aftermath of the Sydney cafe siege a week ago.
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