Tags: Dollar | euro | rises | high

Dollar Rises to Six Month High Against Euro

Friday, 29 Jan 2010 03:56 PM

The dollar got a lift Friday as the U.S. economy posted its fastest growth in more than six years in the fourth quarter.

The 16-nation euro tumbled to a 6-month low of $1.3863 from $1.3978 late Thursday. It later ticked back up to $1.3867. The British pound fell to $1.5993 from $1.6127, and the dollar rose to 90.32 Japanese yen from 89.90 yen.

The U.S. government said Friday that the U.S. economy grew at a 5.7 percent annual rate in the fourth quarter. That's the fastest pace since 2003, signaling that the recession has ended — and raising the possibility that the Federal Reserve could start boosting interest rates.

Higher interest rates can boost a currency as investors transfer funds to currencies that have higher yields. The current U.S. federal funds rate, a range near zero, is among the lowest of the world's major economies.

"This is a big number — a shot in the arm for confidence," Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. in New York, said of the GDP data. He said it signaled that growth would continue throughout the year, and unemployment would come down, leaving the Fed room to raise rates "sooner rather than later."

"If you're looking for a rate hike in summer, today's GDP report certainly boosted that probability significantly," he said.

U.S. stocks initially rose along with the dollar, a somewhat rare occurrence since the financial crisis began. Investors had been buying the dollar has a relatively safe haven when equity markets tumbled and sold the buck when stock rallied.

Stocks, however, later faltered Friday as investors appeared to question whether the strong fourth-quarter growth could be sustained. The Dow Jones industrial average was off about 0.3 percent in afternoon trading.

Meanwhile, enormous budget deficits in some European countries continued to pose a threat to the eurozone. European Union officials refused to comment on reports that a bailout plan for the heavily indebted Greece is under discussion.

French and German officials have denied media reports that they are in talks with other eurozone nations about a financial rescue package for Greece, which wants to borrow 54 billion euros in the bond markets this year to plug its budget gap.

Greece's financial troubles are a problem for the EU because countries that share the euro agree to limit their deficits to 3 percent of annual economic output. Otherwise, large deficits can undermine a currency.

Spain is also struggling to cut spending in order to deal with its own deficit, which has swelled to 11.4 percent of its GDP.

Other European countries are also moving to cut their deficits, such as Portugal and Poland, which could worsen the economic downturn in their countries, said Brown Brothers Harriman analyst Marc Chandler.

In other late trading Friday, the dollar edged up to 1.0691 Canadian dollars from 1.0651 late Thursday, and climbed to 1.0608 Swiss francs from 1.0514 francs.

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The dollar got a lift Friday as the U.S. economy posted its fastest growth in more than six years in the fourth quarter.The 16-nation euro tumbled to a 6-month low of $1.3863 from $1.3978 late Thursday. It later ticked back up to $1.3867. The British pound fell to $1.5993...
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