U.S. gross domestic product, the broadest measure of the country’s economy, rose at a 2.2% rate in the first quarter, below the 2.6% growth rate economists had forecast.
The weaker-than-expected report came as investors, concerned the U.S. economic recovery may be stumbling, have been eager to pinpoint the Federal Reserve’s next potential move. Friday’s data was seen as making another round of stimulus more likely. The EUR rose to $1.3252 from $1.3217 late Thursday.
Fed Chairman Ben Bernanke left open the possibility for more bond purchases, known as quantitative easing, Wednesday after the central bank held its open-market-committee meeting. Market participants have been trying to use economic reports as a gauge for whether the Fed might start a new round of quantitative easing in the near future. The central bank’s Operation Twist, in which it buys long-dated Treasurys and sells short-term government debt it already holds, is due to expire in June.
The dollar had already been lower against the yen before the worse-than-expected GDP report, after the Bank of Japan failed to surprise the market at its latest meeting. The Japanese central bank announced it would add Y10 trillion to one bond purchase program and remove Y5 trillion from another for a net effect of increasing bond purchases by Y5 trillion. A survey earlier in the week by Nomura Securities indicated about 60% of market participants were expecting Y5 trillion in stimulus and nearly 30% were expecting at least Y10 trillion in more bond purchases. So when the central bank fell in line with expectations and even disappointed some market participants, there was little reason for investors to drive the dollar higher and yen lower.
Speculative investors held a net short JPY position against the USD totaling $8.6 billion as of Tuesday, according to data released Friday by the Commodity Futures Trading Commission. The USD fell to Y80.26 from Y80.99 late Thursday. The EUR also dropped against the yen, falling to Y106.38 from Y107.10.
The euro’s decline against the yen and other currencies likely was tied to a downgrade by Standard & Poor’s of Spain’s sovereign-debt rating. The firm cut its rating on Spain by two notches on concern about the country’s ability to meet its deficit targets, highlighting the continued sovereign-debt problems plaguing the common-currency zone.
EasyForexNews Research Team