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US Dollar Rebounds as GDP Accelerates

H.S. Borji
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US Dollar Rebounds as GDP Accelerates

The US dollar rebounded against a basket of currencies Thursday, as the US economy accelerated faster than initially expected in the second quarter, while pending home sales rebounded sharply last month.

The US dollar index, a weighted average of the greenback’s performance against six major peers, rose 0.12 percent to 82.53. The index, which is re-approaching a one-year high after a temporary slowdown on Wednesday, is pacing for a weekly gain of 0.5 percent.

The world’s most actively traded currency was supported after government economists said second quarter growth was more robust than initially reported.

US gross domestic product grew at an annual rate of 4.2 percent in the April-June period, the Commerce Department confirmed in its revised estimate. Last month the government said US GDP accelerated at an annual rate of 4 percent in the second quarter.

Economists speculated that second quarter growth figures would be revised down after disappointing wholesale and business inventories data in June. Although the revised estimates noted a smaller contribution from private inventory than initially estimated, they were offset by larger nonresidential fixed investment.

The revised estimate revealed “the general picture of growth remains the same,” the Commerce Department said.

Today’s figures confirm the economy responded positively to the arrival of warm weather. US gross domestic product contracted at an annual rate of 2.1 percent in the first quarter, as an unusually harsh winter impacted the recovery.

In other news, pending home sales increased faster than forecast in July, the National Association of Realtors reported today.

The trade association said contracts to buy previously-owned homes increased 3.3 percent in July, as homebuyers took advantage of “favourable housing conditions.”

The NAR said an improving labour market is playing a bigger role in home buying.

A separate report released today underscored America’s improving labour market. Initial jobless declined 1,000 to a seasonally adjusted 298,000 in the week ended August 23, the Labor Department said.

The Labor Department will release August nonfarm payrolls next week. Initial estimates suggest the US economy added around 210,000 jobs this month.

The dollar traded sideways against the British pound and advanced versus the euro, but was weaker against the Japanese yen and Swiss franc. Safe-haven currencies received a boost today after Ukrainian President Petro Poroshenko said Russian forces have entered Ukraine.

The dollar-to-yen exchange rate fell for the second consecutive day, tumbling 0.11 percent to 103.75. The pair is testing initial support at 103.71. Initial resistance is likely found at 104.11.

The USDCHF fell to an intraday low of 0.9125. The pair would subsequently consolidate at 0.9143, declining 0.05 percent. Initial support is likely found at 0.9128. On the upside, initial resistance is likely found at 0.9177.

The threat of more violence in Ukraine is weighing on sentiment in the Eurozone. The economic sentiment index fell to an eight-month low in August, the European Commission reported today.

A deterioration of West-Russia relations is expected to further dampen the Eurozone’s recovery efforts. The 18-nation economic zone stagnated in the second quarter. Germany, its largest economy, contracted 0.2 percent.

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