Recovers from losses after Moody’s report on U.S. rating
By Deborah Levine and Sarah Turner, MarketWatch
NEW YORK (MarketWatch) — The dollar extended gains against the euro on Friday, but headed back to the day’s lows against the Japanese yen, after a private report on consumer sentiment was not as weak as analysts expected.
The dollar got a boost from an earlier report showing the U.S. economy grew at a slightly slower pace in the fourth quarter than economists expected.
The dollar index (DXY 78.09, +0.36, +0.46%) , which tracks the greenback against a basket of six other currencies, traded at 77.928, up from 77.699 before the growth data and 77.707 in late North American action Thursday.
The euro (EURUSD 1.3624, -0.0106, -0.7719%) fell to $1.3668, compared with $1.3738 in the previous session.
The dollar (USDYEN 82.1700, -0.7300, -0.8808%) bought 82.26 yen, down from ¥83.18 Thursday.
The final January reading of the Reuters/University of Michigan consumer-sentiment index slipped from December, but by less than analysts had predicted. Read about UMich confidence index.
The dollar rebounded from slight losses after Commerce Department said U.S. real gross domestic product rose at a 3.2% annualized rate in the fourth quarter, up from a 2.6% rate in the third quarter, helped by a big improvement in consumer spending. Economists polled by MarketWatch expected GDP to rise at a 3.5% rate. Read more on U.S. GDP.
For the year, GDP advanced 2.9% -- the strongest growth rate in five years and a turnaround from a 2.6% drop in 2009.
“This is a very good number,” said Eric Green, chief U.S. rates strategist at TD Securities. “The foundation here is conducive to more strength next quarter, and beyond even, with an inevitable retrenchment in consumer spending.”
Helping the euro somewhat in European trading hours was news about the region’s bailout fund and relative quiet in debt markets for some of the peripheral countries.
Euro-zone governments will increase the lending capacity of their bailout fund and improve the fund’s flexibility, but won’t raise the level of guarantees from 440 billion euros ($604 million), European Commissioner for Economic and Monetary Affairs Olli Rehn told The Wall Street Journal in an interview Thursday.
Yen rebound
The dollar’s rally on Thursday against the Japanese yen proved short-lived.
At one stage the previous day, the dollar sported a gain of 1.1% against the yen, with the move coming after a downgrade of Japan’s long-term sovereign debt by credit-rating agency Standard & Poor’s. Read more on dollar's surge against yen
“We think that the overall impact on the Japanese yen will be limited. We note that, historically, downgrades of Japan by ratings agencies have had little impact,” said strategists at Barclays Capital.
“News about sovereign ratings typically have a larger impact on currencies attached to larger external public-debt positions — the euro-area peripherals, New Zealand and the U.K., for example,” they said.
Noting the large gains by the dollar against the yen on Thursday, the strategists said that investors are currently more sensitive than usual to news about government balance sheets, and that positioning data indicate that investors were long the yen versus the dollar heading into the announcement.
“We do not think that either of these reasons will lead to a sustained move higher in the U.S. dollar/Japanese yen,” they said.
Traders also grappled with a report from Moody’s Investors Service, released late Thursday, saying it continues to rate the U.S. government’s bonds at Aaa with a stable outlook.
However, it added that recent trends and the outlook for U.S. government financial metrics “indicate that the level of risk, while still small, is rising and likely to continue to rise in the next several years.”
The agency said that, although it’s not currently contemplating action on its U.S. rating, the time frame for possible future actions “appears to be shortening” and the probability of assigning a negative outlook in the coming two years is rising.
