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Dollar Gains After Stronger-Than-Expected U.S. GDP

The dollar rose Friday after a preliminary estimate from the government showed the U.S. economy grew at a slightly faster pace than expected in the second quarter.

The report somewhat eased concerns about ongoing problems in the U.S. housing and credit sectors.

Data on Friday showed the U.S. gross domestic product expanded at a 3.4% annual pace, the fastest since 4.8% in the first quarter of 2006. In the first quarter, the economy grew at a downwardly revised 0.6% pace in the first quarter.

However, the so-called core prices that exclude food and energy items, suggested inflation was moderating. Core prices gained at a surprisingly low 1.4% annual rate, within the presumed comfort range of monetary policymakers and the lowest since the second quarter of 2003.

"We had a good baseline GDP number but the prices component fell. That's setting us up for a little tug of war here, because it shows inflation pressures are ebbing," said Greg Salvaggio, vice president of trading, at Tempus Consulting in Washington.

The euro was down against the dollar. Against the yen, the dollar rose, while the euro fell.

The futures market, meanwhile, showed an 82% chance the Fed will ease by year-end (FFZ7), up from 76% overnight. Before Thursday's rally prospects for a Fed cut this year were below 50%.