The dollar fell to a record low against the euro yesterday in the wake of disappointing data on the US economy. The dollar regained ground later in the day when a survey of US consumer confidence for April was stronger than expected, writes Marc Coleman, Economics Editor.
But analysts retained a pessimistic outlook on the currency's immediate prospects.
The US economy grew annually by just 1.3 per cent in the first quarter, the US commerce department said yesterday. The figure is the weakest rate in four years and reflects weakness in the US housing market and export sector.
A figure of 1.8 per cent growth had been widely expected and the news caused the dollar to weaken to $1.3680 against the euro - the lowest value the dollar has reached against the euro since the latter's establishment on January 1st, 1999.
The dollar regained strength later on in the day, following publication of the latest University of Michigan survey of consumers.
The survey - which is a closely watched indicator of consumer sentiment - reported stronger-than-expected confidence for the month of April.
Although falling to its lowest level in seven months, the results for April were better than expected, causing the dollar to strengthen to $1.3622.
Ulster Bank chief economist Pat McArdle said yesterday's fall was to be expected given the state of the US economy.
"This has been forecasted by many of us for several years now. It basically reflects the imbalances in the US economy as shown up by the balance of payments deficit," Mr McArdle said yesterday. He added that a further weakening of the dollar could be expected in the coming months.
"The fact that the consumer sentiment report came in a little better than expected takes the heat off the dollar for the moment," said Brian Dolan, director of FX research at Forex.com in Bedminster, New Jersey.
"But it's still a position-driven market. The dollar is heavy but it's not making any gains and it comes down to whether or not we see some short-covering into the end of the week," he added.
Against the yen, the dollar trimmed losses to 119.42 yen, but was still down 0.1 per cent from late Thursday.
A statement accompanying the survey attributed the better-than-expected outcome to continued strength in the stock market.
"The small rebound in late April was due to diminished concerns among high-income households, with the gains especially strong during the past week, when stock prices recorded new record highs."
Despite weak growth numbers, the Dow Jones last Tuesday surged past the 13,000 mark for the first time in its history, six weeks after enduring a significant fall. - (Additional reporting, Reuters)
