Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar rallied Friday to its highest level since August against its major competitors Friday as better-than-expected U.S. economic growth led investors to place increasing bets on a U.S. recovery gaining traction.
A strong U.S. gross domestic product report released Friday bolstered a slightly more rosy statement from the U.S. Federal Reserve released earlier in the week, with many investors expecting key U.S. interest rates will increase sooner than previously expected, boosting the greenback.
Mounting concerns over festering issues of Greek sovereign debt kept the euro under pressure.
"America's recovery is outpacing most of its major counterparts, and that's also a very dollar-positive point of view," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington. "This [GDP data] contrasts with the dire state of affair in the euro zone."
Friday morning, the euro was at $1.3948 from $1.3980 late Thursday, according to EBS via CQG. The dollar was at Y90.70 from Y89.88, while the euro was at Y126.51 from Y125.63. The U.K. pound was at $1.6055 from $1.6131. The dollar was at CHF1.0514 from CHF1.0510.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 79.133 from 78.880. After the GDP data were released, the index hit 79.243, its highest level since August.
U.S. gross domestic product rose a seasonally adjusted 5.7% annual rate October through December, the Commerce Department said Friday in its first estimate of fourth-quarter GDP.
Economists surveyed by Dow Jones Newswires had forecast 4.8% GDP growth during the fall.
"The good news should add to the dollar's already upbeat tone, and is consistent with the Fed's slightly upgraded economic outlook," Esiner said.
Though the Federal Open Market Committee on Wednesday left key U.S. rates ultra low, investors interpreted its accompanying statement as expressing more confidence in a U.S. economy gaining an increasing toehold. The confirmation Thursday of Fed Chairman Ben Bernanke also helped ease some uncertainty surrounding the dollar, analysts said.
Some investors now believe the Fed could increase key rates sooner than the European Central Bank, which is keeping the euro hampered along with the crushing debt in some euro-zone countries.
Concerns over stressed Greek debt eased slightly on Friday, with the yield spread between 10-year Greek government bonds and German bunds--the euro-zone standard bearer--narrowing on Friday from the record highs they reached on Thursday.
Still, the yield spread--a key indicator of risk--remained high for Greek bonds, while the yield spread widened for Portugal, another euro-zone member struggling with crushing debt. This puts pressure on the common currency.
The French and German governments Thursday denied a report that euro-zone states were considering bilateral aid schemes for Greece. But European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said Friday that the EU can't let any member descend into crisis without it affecting other members.
"We are cooperating with those who have more serious problems," Almunia said. "We are all in the same [boat]."
Investors worried sovereign debt issues in Greece would spread to other members of the euro zone, including Portugal.
"Until there is more clarity on the path for the weaker member states, upside in [the euro] will be capped," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
A particularly bad signal for the euro will be if the common currency closes Friday trading below the psychologically significant $1.40 level, Sutton said in a note to clients. Technical analysts said the euro could be in for a drop toward the mid-$1.30s.
Meanwhile, in another sign of developing countries tightening monetary policy, India on Friday chose to attack excess cash in the banking system but shied away from raising policy interest rates, which would have raised funding costs for companies across the board and hurt a nascent economic recovery.
Following in the footsteps of China, the Reserve Bank of India's decision to raise a key cash reserve requirement for banks was anticipated by the market, but the size of the move--75 basis points, to 5.75%--was larger than the 50-basis-point increase most analysts were expecting.
Canada Morning
The U.S. dollar was little changed against the Canadian dollar Friday, as better-than-expected Canadian economic growth figures released Friday competed with the strong U.S. GDP data.
Friday morning, the U.S. dollar was at C$1.0665 from C$1.0666 late Thursday, according to EBS via CQG.
Gross domestic product in Canada accelerated 0.4% to C$1.20 trillion in November from an upwardly revised 0.3% the previous month, Statistics Canada said Friday. The market had expected a 0.3% increase. October's growth had originally been estimated at 0.2%. The figure for September also was revised up to 0.5% from 0.4%.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com
(Mark Brown in London, and Subhadip Sircar and Anant Vijay Kala in Mumbai contributed to this article.)
(END) Dow Jones Newswires
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