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Markets

Dollar declines as GDP data underwhelms

NEW YORK: The US dollar was broadly lower on Friday as a combination of underwhelming US economic data and political
28 Jul 2017

NEW YORK: The US dollar was broadly lower on Friday as a combination of underwhelming US economic data and political uncertainty kept traders biased toward the euro and other world currencies.

The euro hit a session high after the release of US second-quarter gross domestic product estimates that largely met economists' expectations.

Some analysts pointed to a smaller-than-expected increase in US labor costs, but others suggested the data was just an excuse for traders to continue the weak dollar trade that has sent the US currency lower for much of this year.

US gross domestic product growth picked up to 2.6 percent in the second quarter, matching expectations of economists polled by Reuters, while growth in the first quarter was revised down to 1.2 percent.

"I think this just removes an obstacle," said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co. "The euro bottomed yesterday in New York trading and it's been climbing ever since. If anything, the GDP number pushed an open door."

The euro has risen nearly 3 percent against the dollar so far this month and more than 11.5 percent in the year to date. It is on track for its third weekly gain in a row and the fourth in five weeks.

On Friday, the euro moved higher against the dollar, and was last up 0.5 percent at $1.1740. On Thursday, the euro rose to its highest against the greenback in 2-1/2 years before retreating in later trading.

The weakness of the dollar has been most evident against the euro this year, but it has fallen against most major currencies as expectations for US fiscal stimulus and an increased pace of overnight interest rate hikes from the Federal Reserve have dissipated.

"The dollar was rising (last year) on the basis of the US being seen as probably the first major central bank to engage in a (monetary policy) tightening bias," said Tom Hainlin, national investment strategist at US Bank.

"Then ultimately we saw almost a synchronized amount of talk coming from major central banks that the US wasn't the only game in town in terms of slowing its easing bias or even tightening."

The US Senate's failure to pass a repeal of the 2010 Affordable Care Act overnight also hurt the greenback, analysts said.

The dollar fell 0.9 percent to C$1.2440 against the Canadian dollar after Canada's May GDP growth was triple what economists had expected, rising 0.6 percent for the month and 4.6 percent year over year.

Copyright Reuters, 2017