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US Dollar Weakens on Dismal GDP Report

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US Dollar Weakens on Dismal GDP Report

The US dollar declined against a basket of currencies Wednesday after the Commerce Department said the US economy in the first quarter contracted at a sharper rate initially forecast.

The US dollar index, a broad gauge of the greenback’s performance versus six commonly traded peers, declined 0.16 percent to 80.20. The index recovered from a daily low of 80.09.

In economic data, a dismal US GDP data report and an unexpected drop in durable goods orders overshadowed the strongest services PMI report on record.

The US economy contracted at an annual rate of 2.9 percent in the first three months of the year, the Commerce Department confirmed today. Economists forecast the revised reading to show a 1.7 percent drop.

In May the government said the economy shrank 1 percent annually. The third estimate, which is based on more complete data, revealed that personal consumption expenditures were lower than initially estimated.

In other data, US durable goods orders unexpectedly declined in May, falling at a pace of 1 percent. That followed a gain of 0.8 percent in April.

Excluding transportation equipment, durable goods orders declined 0.1 percent, official data showed.

An industry report courtesy of Markit Group said the US service economy expanded at the fastest pace since the survey began in October 2009. The flash PMI estimate reached 61.2 in June, up 3.1 percentage points from the previous month.

Higher business activity was the main catalyst for the jump, which combined with Monday’s report on manufacturing, suggests the US economy expanded around 3 percent annually in the second quarter, according to Markit.

Government reports on US personal income and personal spending are scheduled for release Thursday.

The US dollar declined sharply against its Canadian counterpart. The USDCAD shed 0.2 percent to 1.0724, recovering from an intraday low of 1.0716. The pair has lost 0.85 percent since June 20, driven lower by strong advances in Canadian retail trade and consumer inflation. The pair is testing initial support at 1.0722. Initial resistance is likely found at 1.0757.

The dollar weakened versus the Japanese yen, as the USDJPY declined 0.1 percent o101.86. The trend line shows initial support at 101.80 and resistance at 102.16.

The EURUSD advanced 0.2 percent to 1.3630, easing off an intraday high of 1.3651. Initial support is found at 1.3583 and resistance at 1.3629.

In Eurozone data, German consumer confidence advanced in July, the GfK institute reported today. The consumer confidence index rose 0.3 points to 8.9, exceeding forecasts.

The GBPUSD was virtually unchanged Wednesday, treading water after the markets reacted negatively to Mark Carney’s testimony earlier in the week. The Bank of England Governor downplayed rate hike speculation, claiming that weak earnings growth continued to dampen the recovery efforts.

The GBPUSD held steady at 1.6977, where it faces support at 1.6956 and resistance at 1.7023.

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