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US dollar eases off GDP-driven highs, but outlook remains bullish

H.S. Borji
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The US dollar cooled against a basket of currencies Wednesday after a GDP-driven rally sent the index to a fresh multi-year high, as the economic outlook continued to blossom heading into the new-year.

The US dollar index, a weighted average of the greenback against a basket of currencies that includes the euro, yen, pound, franc, krona and Canadian dollar, dipped 0.1 percent to 89.97. The index surged to a high of 90.12 on Tuesday, the highest level since April 2006.

The greenback was inspired by much better than expected GDP figures, which showed the US economy expanded at its fastest pace in 11 years. Gross domestic product rose at a seasonally adjusted annual rate of 5 percent in the third quarter, well above the previous estimate of 3.9 percent, the Commerce Department reported Tuesday. A median estimate of economists called for a 4.1 percent uptick.

Combined with the second quarter’s annual GDP tally of 4.6 percent, the third quarter culminated the strongest period of US economic growth in well over a decade. The impressive third quarter results underscore America’s resilience in the face of global uncertainty and highlight even more so the divergent monetary policies taking shape throughout the world.

Upbeat GDP figures outweighed disappointing durable goods orders. Orders for manufactured goods meant to last three years or more dipped 0.7 percent in November, the Commerce Department said on Tuesday. Excluding the volatile transportation category, durable goods orders fell 0.4 percent, official data showed.

There was little movement in the forex market Wednesday as investors looked forward to Christmas. In economic data, the Labor Department said initial jobless claims declined for the fourth consecutive week last week, falling 9,000 to a seasonally adjusted 280,000. The bigger than expected drop sent jobless claims to a seven-week low, underscoring the broad labour recovery that has swept the nation this year.

The dollar lost ground against the Japanese yen, as the USDJPY dipped 0.27 percent to 120.45. The pair is still enjoying multi-year highs and is poised to print higher as Japan’s economic outlook continues to wane.

The greenback consolidated lower against the euro, as the common currency posted a modest rebound. The EURUSD remains capped below the 1.2200 handle, as investors monitor latest developments from the European Central Bank. The pair fell to an intraday low of 1.2169 before consolidating at 1.2193, advancing 0.16 percent. With the US dollar index pushing above 90.00, analysts expect the EURUSD to fall to 1.2000 in the short-run.

The North American pair was little changed Wednesday, as the USDCAD consolidated at 1.1623. Statistics Canada on Tuesday said the world’s eleventh-largest economy expanded 0.3 percent in October, well above forecasts. That puts the economy on pace to grow closer to 2.5 percent this quarter, up from earlier expectations of around 2 percent.

The dollar printed lower against the British pound, as the GBPUSD gained 0.2 percent to 1.5546. The pound edged lower Tuesday following disappointing GDP figures. UK gross domestic product grew only 2.6 percent annually in the third quarter, the final estimates from the Office for National Statistics said. That was well below the previous estimate of 3 percent. Compared to the second quarter, GDP output increased just 0.7 percent, official data showed.

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