Sluggish US economic growth sinks dollar

AP News
Posted: Jul 29, 2011 4:01 PM
Sluggish US economic growth sinks dollar

The dollar fell broadly Friday on signs of a sharp slowdown in U.S. economic growth and the increasing possibility of a debt default that could hurt the economy.

The government said that the U.S. economy grew at a tepid 1.3 percent annual rate from April through June, after growing a scant 0.4 percent in the first three months of the year. It's the weakest six months for the economy since the recession ended in June 2009.

"The Federal Reserve can't help but look at these numbers and wonder if it ending asset purchases last month was premature," wrote foreign-exchange brokerage GFT's currency analyst Kathy Lien. "The dollar is looking less and less attractive."

The Fed's bond-buying program, which ended in June, was meant to lower interest rates and promote lending and economic growth. Lower interest rates tend to weaken a currency, however. A new bond-buying program to support the struggling economy could make the dollar even less appealing to investors.

Meanwhile, lawmakers are still fighting over how to raise the U.S. debt limit. The U.S. is edging closer to a possible default, which economists say would further damage the already weak economy. The Obama administration has said there must be a deal no later than Aug. 2 to let the government borrow more money.

In late trading Friday in New York, the dollar sank 77.10 Japanese yen from 77.88 yen Thursday and fell to 0.7884 Swiss franc from 0.8016 Swiss franc.

Traders consider the yen and franc to be safe bets. The dollar is also a traditional safe-haven currency, but its debt woes have made it less appealing.

The dollar has fallen nearly 19 percent against the franc this year. It's trading at its lowest point against the yen since the world's major central banks intervened to weaken the Japanese currency in March. Back in March, the dollar had fallen to a post-World War II low of 76.32 yen in the aftermath of the devastating Japanese earthquake.

UBS analyst Chris Walker said the Japanese finance minister suggested that the government could move to curb the yen's rise.

The euro rose to $1.4368 from $1.4311 late Thursday. Before the release of the U.S. economy report, the euro had been sliding on worries about Europe's debt crisis.

The British pound rose to $1.6431 from $1.6344, while the dollar rose to 95.54 Canadian cents from 95.06 Canadian cents.