Dollar Reaches 6-month High

Submitted by TREND Technical... on Fri, 01/29/2010 - 13:27

As predicted first in the pages of the TREND Letter and TREND Technical Trader, 

http://www.marketwatch.com/story/dollar-gains-ahead-of-us-gdp-data-2010-01-29

By Deborah Levine & Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- The dollar rose to a fresh six-month high on Friday, propelled by data showing the American economy grew at a faster-than-expected clip in the fourth quarter and consumer confidence rose this month.

The GDP's bigger-than-expected gain brings good news but there is still caution over if and when the market will tighten, the News Hub panel reports.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 79.45, +0.55, +0.70%) , which tracks the greenback against a trade-weighted basket of six major currencies, increased to 79.413 compared with 78.875 late Thursday. It's the highest level since late July and heading toward its second weekly gain.

The dollar index has advanced 1.8% this month.

The euro fell to $1.3877 compared with $1.3985 late Thursday. The shared currency also touched its lowest level since June. The euro is on pace for a third weekly decline, adding to a 2.5% loss this month versus the greenback.

The dollar rose 0.7% to 90.43 Japanese yen compared with 90.25 yen before the GDP release. Still, the dollar has fallen for a fourth week, having lost about 3.4% this month.

The British pound fell 0.7% to $1.6017. It's declined 0.2% this month versus the dollar.

The gains came after the Commerce Department reported that real gross domestic product grew at a 5.7% seasonally-adjusted annual rate in the final three months of the year, posting the best quarterly growth since late 2003.

The data blew away market expectations and sent the dollar sharply higher against the yen, said Kathy Lien, director of currency research at Global Forex Trading.

"The critical question is whether the strong U.S. report will finally cause the dollar to trade off of its economic outlook and not risk appetite," Lien said in a note to clients.

The dollar added to gains after a report said U.S. consumer confidence improved this month than previously estimated, according to a survey by Reuters/University of Michigan. Its sentiment index rose to 74.4 this month, from a previous estimate of 72.8.

The GDP report was "unambiguously positive" for the dollar against the yen, but other major currencies such as the euro are struggling with the dueling forces of risk appetite and the outlook for the U.S. economy, according to Lien.

Typically, positive data about the American economy should boost the dollar. But in recent months, the dollar has sometimes declined after good economic data, falling at the expense of currencies that are perceived as relatively higher-yielding, including the euro.

News from Europe

The disconnect from investor risk appetite was evident in the dollar's gains even as political news also supported buying riskier assets. News reports point to a backup plan being developed to rescue Greece if the country isn't able to shore up its fiscal position.

"We continue to see further downside in the euro-dollar as long as this issue remains in focus," strategists at Citi wrote in a note. "Rising fears that Greece's fiscal problems are turning from a mere medium term solvency issue into a more acute liquidity issue are keeping investors on their toes."

Traders also digested earlier data showing that unemployment in the 16-nation euro zone reached 10% in December for the first time.