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US dollar supported after upbeat data, British pound steadies

[TOKYO] The US dollar held firm at start of holiday-thinned week on Monday after US data pointed to solid economic growth while the British pound found some stability after having suffered its biggest weekly fall in three years.

A batch of economic data published on Friday showed the US economy, already in its longest expansion in history, appears to have maintained the moderate pace of growth as the year ended, supported by a strong labour market.

Gross domestic product increased at a 2.1 per cent annualised rate, the Commerce Department said in its third estimate of third-quarter GDP. That was unrevised from November's estimate.

"The US economy appears to have stopped slowing. There is no indication it will be hitting a recession," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

Earlier this year, investors were spooked by fear of a US recession when the US yield curve inverted, which has been historically one of the most reliable signs of a US recession.

Separate data showed consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 per cent last month as households stepped up purchases of motor vehicles and spent more on healthcare.

That contrasted with an unexpected deterioration in German consumer sentiment.

The euro stood at US$1.10775, in retreat since it hit a four-month high of US$1.12 on Dec 13.

The US dollar index was at 97.682, flat on the day but maintaining its recovery trend since hitting a five-month low of 96.605 on Dec 12.

Against the yen, the US dollar was traded at 109.47 yen, up 0.04 per cent from late US levels, not far from six-month high of 109.73 touched earlier this month.

"One thing to look at is whether market players cut their (yen-short) positions ahead of the holiday period on concerns there could be a flash crash like a year ago," said Minori Uchida, chief currency analyst at MUFG Bank.

The dollar tumbled as much as 4.4 per cent on the second trading day of this year as a lack of yen liquidity due to Japanese market holiday amplified the dollar/yen's fall sparked by a rare revenue warning from Apple Inc.

Currency speculators have cut their net short positions in the yen slightly in week that ended last Tuesday after having increased bets against the currency constantly for a few months, data from US financial watchdog showed on Friday.

While the US dollar is supported by optimism on the global economy after Washington and Beijing came to an interim trade agreement earlier this month, some noted concerns over increasing tensions between North Korea with the United States.

North Korean leader Kim Jong Un held a meeting of top military officials to discuss boosting the country's military capability, state news agency reported on Sunday amid heightened concern the North may be about to return to confrontation with Washington.

Sterling traded at US$1.3004 up slightly after having found some stability after hitting a 2.5-week low of US$1.2979.

It had fallen 2.6 per cent last week, the biggest weekly fall since October 2016, after UK Prime Minister Boris Johnson set December 2020 as a hard deadline to reach a trade agreement.

On Friday, Mr Johnson won approval for his Brexit deal in Parliament, the first step towards fulfilling his election pledge to deliver Britain's departure from the European Union by Jan 31.

REUTERS