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Dollar lower vs euro; US GDP worse than forecasts
NEW YORK - The dollar was lower against the euro on Wednesday as a recovery in share prices around the world indicated increased risk tolerance despite a worse-than-expected report on U.S. economic growth.
But investors were taking small bets, analysts said, ahead of the conclusion of a two-day Federal Reserve policy meeting with expectations for more quantitative easing.
The U.S. economy contracted at a steeper-than-expected pace of 6.1 percent in the first quarter, weighed down by sharp declines in exports and business inventories, according to government data on Wednesday that showed the economy was still deep in recession. [nN28309952]
The figure was weaker than analysts’ forecasts of a drop of a 4.9 percent rate, according to a Reuters poll, and it also meant output now has declined for three straight quarters for the first time since 1974-1975. U.S. stock futures trimmed gains but still pointed to a higher open. [ID:nN29390529].
Also helping the euro was a European Commission survey showing that economic sentiment in the region improved to 67.2 points in April from 64.7 in March, rising more than expectations for a climb to 65.2 points [ID:nLT148975].
But most focus was on the Fed and as rates are already near zero, markets will be looking for any extension of quantitative easing and will focus on the central bank’s economic outlook amid signs that a downturn is easing. A statement is due out around 2:15 p.m. (1815 GMT).
“The market is square dollars and neutral until we see what the Fed has in store,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. “There will be no change in the fed funds rate but further quantitative easing.”
The euro EUR was up 0.7 percent at $1.3240.
Improving risk demand stung the yen, which along with the dollar had risen earlier in the week, when uncertainty about the impact of a spread in swine flu had sparked safe-haven buying in the two currencies, which are considered low-risk.
The euro EURJPY climbed roughly 1.2 percent to 128.24 yen, pulling back from a six-week low on Tuesday. The dollar rose 0.5 percent at 96.86 yen JPY.
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