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Dollar Gains vs Euro on US Economic Data

The dollar rallied Thursday after suffering steep losses in the last two sessions, rising on data showing the U.S. economy grew in the fourth quarter in line with market expectations.

Dollar and Euro
Dollar and Euro

The data, coupled with a separate report showing a decline in jobless claims in the latest week, did not change the market's view about the need for further U.S. interest rate cuts to boost a weakening economy. But it did ease concerns about a much sharper slowdown.

"The numbers this morning had an impact on the dollar. We'll take any upside surprise we can get at this point," said Rhonda Power, corporate trading manager at Travelex Global Business Payments in Toronto.

"But there are still some significant concerns about the economy. With this subprime situation unresolved, we think there is still negativity in the market," she added.

The euro was down against the dollar on the day, a bit more than 1 cent below last week's record highs above $1.59. But the euro was still up more than 8 percent this quarter, remaining on track for its strongest quarterly performance since late 2004.

Against the yen, the dollar rose, but the dollar gained against the Swiss franc .

In its final estimate of fourth-quarter gross domestic product, the Commerce Department said Thursday that economic growth slowed to an annual pace of 0.6 percent from a robust 4.9 percent in the previous three months.

The number was unchanged from the government's previous estimate. Some in the market had been bracing for a much weaker number given the spate of bad news in recent months.

Thursday's data also showed the number of U.S. workers filing new claims for jobless benefits fell by 9,000 last week, although a more reliable gauge of layoff trends rose to its highest in more than two years.

Analysts think that, despite the greenback's bounce on Thursday, the broadly weak dollar trend will remain.

The U.S. currency's recent sharp falls have made it vulnerable to abrupt swings higher as investors book profits. That has resulted in a jittery and volatile currency market.

Tight credit conditions will also keep investors wary of the dollar, analysts said, due to worries about further fallout from the global credit crunch.

Strong euro zone data has dulled expectations of a near-term interest rate cut there, as has continued hawkish rhetoric from the European Central Bank.

While the ECB has kept rates steady at 4 percent, U.S. Federal Reserve has slashed the benchmark federal funds rate to 2.25 percent from 5.25 percent just over six months ago.

U.S. short-term interest rate futures now indicate that investors see a 54 percent chance of the Fed cutting rates by half a percentage point in April. A quarter-point cut is fully priced in.

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