Dollar Slips on Stronger GDP for Third Quarter

October 30, 2014 Wall Street Journal

October 30, 2014

By James Ramage

The dollar weakened against rival currencies Thursday after third-quarter data showed an expanding U.S. economy, but underlying domestic-demand numbers discouraged investors.

The dollar pared gains versus the yen to 108.97 yen from 109.09 yen ahead of the number, still up 0.1% for the session. The euro rebounded from heavier losses against the dollar to $1.2595 from $1.2584 beforehand, but is still 0.3% lower on the day.

U.S. gross domestic product increased at an annual rate of 3.5% in the third quarter, the Commerce Department reported, surpassing economists’ forecasts of 3.1% growth.

But gross domestic purchases and final sales of domestic purchases after excluding inventories and net trade disappointed, Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank, wrote in a research note. The numbers suggested that domestic demand needs improvement.

“This is not going to give the dollar any upside impetus, and if anything may lead to some small trimming of longs built on anticipation of an upside surprise,” Mr. Ruskin wrote.

The Federal Reserve noted in its statement following its policy meeting Wednesday that the U.S. economy is improving, particularly in regards to inflation and the labor market. As the Fed has said its plans to raise interest rates will remain data-dependent, the third-quarter number fits with its assessment of the economy, said Scott Smith, senior market analyst with Cambridge Mercantile Group.

“Today’s GDP number really justified the vote of confidence the Fed gave U.S. economy,” Mr. Smith said. “Over the medium- to long-term basis, this will be a positive for the dollar.”

In addition, weekly U.S. jobless claims ticked up by 3,000 to 287,000, arriving slightly above expectations of 285,000. Jobless claims remained at historically low levels, pointing to an improving labor market.

Investors are waiting for the Fed to raise interest rates for the first time since the financial crisis. Higher rates would boost returns on dollar-denominated assets and increase demand for the greenback.

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