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Euro Sets New Record High Vs. Dollar After Weak U.S. GDP

The dollar fell to an all-time low against the euro Friday, after a government report showed the U.S. economy slowed to a real annualized growth rate of 1.3% in the first quarter, marking the weakest expansion in four years.

The euro jumped to an intraday high of $1.3682 in the immediate wake of the weaker-than-expected GDP reading, as traders sold the U.S. currency on expectations the Federal Reserve will remain sidelined or cut rates in the near term. The previous record was $1.3666, reached in December 2004. The dollar later pared some of its losses as traders adjusted positions before the weekend. "The weaker-than-expected GDP was the catalyst to set a new lifetime high," Timothy Mazanec, senior currency strategist at Investors Bank & Trust Co., said in reference to the euro. "The dollar will continue to weaken and European currencies continue to gain." The European Central Bank and the Bank of England are "still raising interest rates," he said. "Thus, interest-rate differentials will favor the euro and the pound for a few more months." Late in New York, the euro last traded at $1.3650, compared with $1.3601 late on Thursday. The dollar was quoted at 119.45 yen, compared with 119.60 yen. On the week, the dollar lost 0.4% vs. the euro, but managed to eke out a 0.6% gain against the yen. The British pound traded at $1.9983 vs. $1.9909, after having hit $2.0133 last week -- sterling's loftiest level since 1981. The dollar also changed hands at 1.2051 Swiss francs, compared with 1.2083 francs. The Commerce Department said the slower U.S. rate reflected higher energy prices as well as weakness in the housing market, while growth in the first quarter was led by consumer spending. Economists polled by MarketWatch had been expecting a rate of 1.7% for first-quarter GDP. The GDP reading "was a big disappointment," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "It highlights the importance of U.S. consumers in keeping the U.S. economy growing." The Commerce Department said the slower U.S. rate reflected higher energy prices as well as weakness in the housing market, while growth in the first quarter was led by consumer spending. Economists polled by MarketWatch had been expecting a rate of 1.7% for first-quarter GDP. The GDP reading "was a big disappointment," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "It highlights the importance of U.S. consumers in keeping the U.S. economy growing." "The dollar is probably going to continue to remain under pressure next week," said Ronald Simpson, managing director of global currency analysis at research firm Action Economics. "We've got a contrasting picture [of growth] between the U.S. and Europe right now. The euro will continue to be bought on modest pullback next week." (MarketWatch)