Dollar mixed on GDP data, January marks greenback record run

[NEW YORK] The dollar traded mixed on Friday after weaker-than-expected headline US fourth-quarter gross domestic product data, which included the fastest pace of consumer spending since 2006 and left intact market expectations of long-term greenback gains.

US economic activity in the fourth quarter rose 2.6 per cent, below economists' consensus forecast of 3 per cent and nearly half of the third quarter's 5 per cent rate.

While the US Federal Reserve is still expected to begin raising interest rates later this year, the contrast with loosening monetary policies elsewhere in the world is becoming even more stark. "That monetary divergence continues to dominate foreign exchange markets. The fundamental case for dollar strength is still in place as a long-term theme," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.

The US dollar index advanced for a seventh straight month in January, marking the longest streak of monthly gains since the greenback was floated as a fiat currency in 1971. On the day however, the index was off 0.10 per cent.

Market positioning against the euro has built up over the last six months in expectation that the European Central Bank would embark on aggressive monetary easing policies. That scenario played out last week when the ECB announced a 1 trillion-euro quantitative easing plan.

While that ultimately justifies selling pressure on the euro, the unwinding of short-euro positions is creating some buying of the currency, at least in the short term. "The long-term position for the euro is decisively lower, but we seem to be consolidating short-euro positions here before the downtrend resumes," Daingerfield said.

The euro gyrated above and below its break-even point on the day, and was down 0.18 per cent at US$1.1299 on the EBS trading platform. However, the ECB's decision and the consolidation of market positioning helped the euro break a six-week losing streak by gaining 0.84 per cent.

The dollar fell 0.75 per cent to 117.40 yen, ending the week with a loss of around 0.30 per cent.

In contrast to the US economy's growth, albeit slightly lower in the first look at fourth-quarter activity, Canada's economy shrank unexpectedly in November by 0.2 per cent, prompting market talk that the Bank of Canada will cut interest rates in March for the second time in six weeks.

The US dollar surged against its Canadian counterpart, rising to a fresh near-six-year high of C$1.2797 before slipping back to a 0.60 per cent gain at C$1.2693. It is up 2.2 per cent on the week, its tenth consecutive weekly gain against the loonie. "The data in hand do support the Bank of Canada's very bearish interpretation of the impact of lower oil (prices) on the Canadian economy," said Bill Adams, an economist at PNC Financial Services Group.

REUTERS