The USD traded largely lower against most major currencies on Wednesday after the U.S. government revealed the economy contracted in the fourth quarter, confounding market expectations for a gain. The Federal Reserve, meanwhile, said it was making no changes to monetary policy and was keeping interest rates near zero, which kept the greenback lower. In U.S. trading on Wednesday, EUR/USD was up 0.55% at 1.3566. The dollar fell after the Federal Reserve announced it was sticking with loose monetary policies, including its USD85 billion monthly bond-purchasing program, known as quantitative easing. Side effects to quantitative easing include rising stock prices and a weaker dollar. “Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook,” the Federal Open Market Committee in charge of setting interest rates said in a statement. Earlier Wednesday, the Commerce Department reported that the U.S. gross domestic product contracted for the first time since the second quarter of 2009 in the three months ending December, shrinking by 0.1%. Economists were forecasting the U.S. economy to grow 1.1% after a 3.1% expansion in the preceding quarter. A 6.6% decline in government spending and a noted decline in private inventories contributed to the contraction.
The report did reveal parts of the economy were firming, however. Consumer spending rose by 2.2% and business investment was 8.8% higher in the fourth quarter of last year. The USD was down against the pound, with GBP/USD trading up 0.18% at 1.5792. The dollar rose against the yen, with USD/JPY trading up 0.51% at 91.18 and was down against the Swiss franc, with USD/CHF trading down 1.09% at 0.9114. The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.09% at 1.0019, AUD/USD down 0.63% at 1.0408 and NZD/USD trading down 0.61% at 0.8343. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.39% at 79.30. On Thursday, the U.S. is to release the weekly government report on initial jobless claims, as well as data on personal spending and manufacturing activity in Chicago.
EasyForexNews Research Team