Dollar drops as worries about US economy persist

AP News
Posted: May 27, 2011 3:52 PM
Dollar drops as worries about US economy persist

The dollar dropped Friday as a report on consumer spending reinforced concerns about U.S. economic growth.

The Commerce Department said consumer spending rose 0.4 percent in April, but mostly because of rising prices for food and gasoline. Incomes rose 0.4 percent but were flat for the second month in a row when adjusted for taxes and inflation.

Consumer spending accounts for 70 percent of U.S. economic activity. Muted shopping will likely weigh on economic growth and encourage the Federal Reserve to keep interest rates near zero to support the economy. But central banks overseas are raising rates. Currencies in countries with higher interest rates tend to be more attractive to investors.

Another report showed pending home sales fell sharply in April, hitting their lowest point since fall and renewing fears that a recovery in the housing market is far off.

The euro rose to $1.4283 in late trading Friday from $1.4140 late Thursday, even as worries about a possible debt default in Greece persisted. Political parties in Greece could not agree on new austerity measures, despite strong pressure from the European Union. EU leaders want Greece to cut government spending in order to get an additional round of aid beyond last year's emergency loan package.

In other trading, the British pound gained to $1.6473 from $1.6389, while the dollar fell to 80.91 Japanese yen from 81.30 yen.

The dollar hit a record low against the Swiss currency, which investors consider a safe haven. Safe haven currencies tend to rise at times of global turmoil. The dollar fell to 0.8535 Swiss franc late Friday from 0.8661 Swiss franc late Thursday.

The U.S. currency fell to 97.75 Canadian cents from 97.88 Canadian cents.