© Reuters. FILE PHOTO: US dollar and euro banknotes are pictured in Frankfurt, Germany, in this illustration file taken May 7, 2017. The photo was taken May 7, 2017. REUTERS/Kay Faffenbach/Illustration
By Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar rose on Thursday as weaker-than-expected U.S. economic growth in the first quarter was seen as unlikely to deter the Federal Reserve from raising interest rates next week.
An advance estimate of Q1 GDP showed an annualized rate of 1.1% over the period. The economy grew at a 2.6% pace in the fourth quarter. Economists polled by Reuters had expected gross domestic product to rise by 2.0%.
However, investors focused on the quarterly inflation number within the GDP report. Core PCE prices rose 4.9% in the first three months of the year, above expectations of 4.7% and above the fourth quarter figure.
“The weaker growth outlook tells us the Fed will struggle to continue raising interest rates without crushing the economy,” said Amu Sahota, director of forex advisory firm Klarity FX in San Francisco.
“But the conundrum of what to do with inflation remains. The Fed has been telling us that for a long time. So this (core PCE) number is compounded by the fact that we’re going to hike next week,” he added.
Markets have priced in the 90% probability of a 25bp rate hike at the May policy meeting, with a pause in place after that.
A separate report from the Labor Department on Thursday showed that initial claims for state unemployment benefits fell by a seasonally adjusted 16,000 to a seasonally adjusted 230,000 for the week ending April 22nd. Economists had expected 248,000 claims in the final week.
The report indicated that the labor market remains tight, and also supported expectations of an increase in interest rates next week.
In afternoon trade, the dollar rose 0.2% against the yen to 134 yen as the Bank of Japan kicked off a two-day monetary policy meeting, the first under new governor Kazuo Ueda.
The market consensus is that Ueda will leave the ultra-easy policy settings unchanged on Friday, but no one is willing to rule out another surprise such as the sudden doubling of the 10-year yield range in December.
It rose 0.1%, to 101.50.
Meanwhile, the euro fell 0.1 to $1.1024.
The outperformance in the Eurozone was a major factor for the Euro. Germany once again revised its growth forecasts upward on Wednesday, and a survey showed a continued recovery in consumer confidence.
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Coin bid prices at 2:56 PM (1856 GMT)
Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid
previous change
a class
Dollar Index 101.5100 101.3900 +0.12% -1.913% +101.8000 +101.2800
EUR/USD 1.1025 USD 1.1039 -0.14% + 2.88% + 1.1063 USD + 1.0992 USD
USD/JPY 133.9900 133.6900 +0.23% +2.20% +134.1900 +133.2000
EUR/JPY 147.69 147.56 +0.09% +5.27% +147.9900 +147.1500
USD/CHF 0.8940 0.8913 +0.30% -3.33% +0.8976 +0.8905
GBP/USD 1.2490 USD 1.2470 + 0.16% + 3.28% + 1.2493 USD + 1.2437 USD
$/CAD 1.3600 1.3639 -0.30% + 0.35% +1.3645 +1.3593
AUD/USD 0.6630 USD 0.6604 +0.40% -2.73% +0.6635 USD +0.6596 USD
EUR/CHF 0.9854 0.9838 +0.16% -0.41% +0.9880 +0.9834
EUR/GBP 0.8824 0.8853 -0.33% -0.23% +0.8872 +0.8826
0.6145 NZD 0.6115 NZD +0.52% -3.20% + 0.6157 NZD + 0.6116 NZD
dollars / dollars
Dollar / Norway 10.6160 10.6440 +0.04% +8.50% +10.6660 +10.6010
Euro/Norway 11.7006 11.7280 -0.23% +11.55% +11.7660 +11.7005
Dollar / Sweden 10.2964 10.3233 -0.44% -1.07% +10.3526 +10.2889
Euro / Sweden 11.3470 11.3973 -0.44% +1.82% +11.4097 +11.3479