Better-than-estimated U.S. GDP gives greenback brief boost.
The dollar turned back down on Friday against the euro after German Chancellor Angela Merkel and French President Francois Hollande on Friday released a joint statement saying they were determined to do everything possible to protect the euro zone.
A report showing the U.S. economy grew a tad faster than expected in the second quarter briefly supported the dollar, but traders’ shift out of positions against the euro continued to drive the market.
The euro EURUSD +0.65% rose to $1.2332 from $1.2284 late Thursday in North America.
ECB's Draghi boosts markets
Global markets rise following ECB President Mario Draghi's comments that the central bank would do "whatever it takes to preserve the euro." Photo: Reuters.
The ICE dollar index DXY -0.46% , which tracks the greenback against a basket of major currencies, fell to 82.631 from late Thursday’s 82.834.
The comments from Merkel and Hollande, coming a day after strong support from the head of the European Central Bank, boosted investors’ appetite for riskier assets like stocks and lessened demand for the relative safe-haven status of the dollar and Treasury bonds.
The S&P 500 Index SPX +0.70% rose 0.4% in early trading.
A brief rise
The dollar briefly rose after the Commerce Department said U.S. gross domestic product rose at a 1.5% clip in the second quarter. Economists surveyed by MarketWatch had forecast the economy to expand by 1.3%, so the data staved off concerns that the Federal Reserve may soon have to ease monetary policy further. Read story on U.S. GDP.
Still, that’s a slowdown from a revised 2% rate in the first quarter.
The Fed’s policy-setting Open Market Committee meeting next week was already widely seen as coming too early to expect any major action from the U.S. central bank — such as a third massive round of bond purchases known as quantitative easing.
“The GDP data was at the margin fractionally stronger than expected and plays perfectly to the pre-release thinking that the Fed can wait for more clarity on the economy from the next two employment reports before enacting (or not) additional QE measures at the September FOMC meeting,” wrote Alan Ruskin, head of foreign-exchange strategy at Deutsche Bank, in a note.
Declines in the euro are likely to be limited, however, as “European headlines have been consistently risk positive,” he said.
Traders reverse bets
The euro was up before the data as traders continued to reverse bets against the shared currency on hopes of action by the European Central Bank. The ECB chief, Mario Draghi, a day earlier had pledged to do what’s needed to preserve the euro. Read more on Draghi, euro.
But despite the market moves, some analysts remained skeptical of any major impending action from the ECB.
The Bundesbank on Friday said it remained opposed to any further bond purchases by the ECB but would be fine with purchases by the euro zone’s rescue funds, Dow Jones Newswires reported.
“If the better sentiment on the single currency is going to have any chance of being maintained, then two things need to happen,”said Simon Smith, chief economist at FxPro in London.
“First, Draghi is going to have to follow through on his words of yesterday. Secondly, the ECB is going to have to do so in a way that offers reassurance to the private sector that debt holders will not be the ones shouldering the burden.”
The French daily Le Monde, meanwhile, reported that the ECB and euro-zone governments were working on a plan that would see the rescue fund buy Spanish and Italian government bonds in the primary market, while the ECB would resume secondary-market purchases.
The dollar also improved versus other major currencies, with the British poundGBPUSD +0.39% paring a gain to $1.5721 from $1.5685 late Thursday.
The Japanese yen --also considered a safe haven — turned down, with the dollarUSDJPY +0.30% rising to ¥78.44 from ¥78.29.
The Australian dollar AUDUSD +0.51% bought $1.0431, up from $1.0396.
The WSJ dollar index XX:BUXX -0.37% , a new benchmark tracking the greenback against the most heavily traded global currencies, slipped to 71.69 from 71.85.
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