[-] Text [+] * Dollar falls broadly on disappointing U.S. data * Weekly jobless claims surge, reviving recession debate * Crude oil price drop limits dollar losses
(Recasts, updates prices) By Lucia Mutikani NEW YORK, July 31 (Reuters) - The dollar fell on Thursday
as news of a surprise jump in U.S. weekly jobless claims and
below-forecast economic growth in the second quarter reduced
prospects for Federal Reserve interest rate hikes this year. A decline in U.S. crude oil futures and a report showing
manufacturing activity in the country's Midwest region rose in
July, snapping a five-month run of contraction, saw the dollar
recouping the bulk of its losses, however. Analysts said a downward revision to fourth-quarter gross
domestic product growth to show a contraction had caught the
market by surprise, reviving the debate on whether the world's
largest economy was in, or close to, a recession. "Weekly claims are probably the most important number when
it comes to a forward-looking assessment of the U.S. economic
prospects and what we are going to see the Fed do," said
Stephen Malyon, senior currency strategist at Scotia Capital in
Toronto. "Certainly the GDP numbers were disappointing. The big
question is how strong is the U.S. economy? Our view is that
significant headwinds still face the economy and that's going
to keep the Fed on the sideline. That holds negative
implications for the currency." The euro surged to a session high of $1.5700, building on
an overnight rally sparked by a jump in euro zone inflation to
a record high in July. But an drop of more than $2 a barrel in
U.S. crude oil futures halted the currency's advance. The euro
the day. The dollar cut losses against the yen to trade at
108.10 yen
rates by a quarter percentage point at its next monetary policy
meeting in September dropped as low as 30 percent from 40
percent on Wednesday, while perceived prospects for an October
hike fell to 60 percent from 76 percent. "We continue to have a see-saw session. The GDP numbers
took people by surprise, but the fact that Chicago PMI was
above 50 turned around sentiment which was very
dollar-negative," said Boris Schlossberg, director of currency
research at GFT Forex in New York. "Oil came down again, which is helping the dollar as
well." Data earlier showed the number of U.S. workers seeking
jobless benefits rose to 448,000 in the week to July 26 from a
revised 404,000 the prior week. It was the highest reading
since April 2003 and above forecasts for a 395,000 rise. Separately, the government said the U.S. economy expanded
at a 1.9 percent annual rate in the second quarter, up from a
revised 0.9 percent in the first quarter and below market
expectations for 2.0 percent growth. That followed a 0.2
percent contraction in GDP in the final quarter of 2007, first
reported as 0.6 percent growth. For more see [ID:nN31399964]. "These reports are a reminder that the dollar's fundamental
woes are not limited to banking writedowns and high oil prices,
but also a manifestation of weak macroeconomic data, at the top
of which is continued deterioration in the job market," said
Ashraf Laidi, chief strategist at CMC Markets in New York. Comments by euro zone central bank officials to Reuters
that the European Central Bank would raise rates again despite
faltering economic growth if inflation continued to climb or
expectations pick up did not help the euro, analysts said. "That could have something to do with the euro coming back
as well. We have seen material deterioration in euro zone
growth numbers," said Scotia Capital's Malyon. "The ECB targets inflation and if inflation does continue
to rise, then I think they would be prompted to raise rates
again, but I don't expect they will. The sharp rise in rhetoric
is the reflection of this game that the ECB is playing with
euro zone labor unions." Elsewhere, data showing British houses prices crumbled at
record rates and consumer confidence hit historic lows in July
weighed on sterling, pushing it down 0.1 percent to $1.9795
(Editing by James Dalgleish)
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