Dollar slumps, euro lifted by data showing end of recession

The dollar lost ground against the other main currencies Friday, as the euro was boosted by news the eurozone had pulled out of recession in the third quarter.

The single European currency traded up at 1.4911 doll

ars at 2200 GMT against 1.4845 late Thursday in New York.

The dollar dipped to 89.66 yen, from 90.34.

Europe's deepest recession since World War II officially ended when data showed Friday the 16-nation eurozone grew 0.4 percent and the full European Union expanded 0.2 percent in the past quarter.

Growth of 0.7 percent in Germany, Europe's most powerful economy, and 0.3 percent in France, lay behind the improvement across the eurozone.

"The message is that the recovery has begun, but the upswing will be a moderate and gradual affair as domestic demand will remain lackluster," said Fortis economist Nick Kounis.

The market showed little reaction to news that surging imports pushed up the US trade deficit by a hefty 18 percent in September.

The goods and services trade gap rose to 36.5 billion dollars, the highest since January and the biggest jump in 10 years, from a revised 30.8 billion dollars in August, the data showed.

Mike McGrath at PNC Bank said the report suggested global trade flows are increasing again, a positive sign for economic activity but a negative for the dollar, seen as a safe haven in times of turmoil.

"This trade imbalance may seem surprising considering the current state of the dollar," he said. "However it is providing investors with reason to believe in the appreciation potential of other currencies, specifically those deriving their value from relative levels of exports."

Fred Dickson, market strategist at DA Davidson & Co., said traders are now reconsidering the landscape in which global stock and commodity markets have been fueled by a weak dollar and the so-called "carry trade" using greenbacks borrowed at ultralow rates.

"We are starting to see some resistance in the markets that have benefited from the dollar carry trade over the last six months," he said.

"The euro is meeting resistance at the 1.50 dollar level."

He said the market was concerned amid reports that Asian nations are actively buying dollars to prevent their currencies from appreciating too rapidly, to help keep their exports competitive.

"While the dollars involved in currency stabilization efforts are miniscule relative to the trading volume in the currency markets that totals more than three trillion dollars a day, apparently the result is momentary stabilization of the dollar," he said.

In late New York trade, the dollar stood at 1.0119 Swiss francs from 1.0173 Thursday.

The pound was at 1.6684 dollars after 1.6580.

Source: AFP

Other news