* Dollar index drops to one-month lows after surprisingly
* U.S. economy contracted at an annualised rate of 2.9 pct
* USD setback seen temporary as recent data more encouraging
By Ian Chua
SYDNEY, June 26 The dollar languished near
one-month lows against a basket of major currencies early on
Thursday, having been knocked back hard after revised U.S.
growth figures for the first quarter came in shockingly weak.
The dollar index fell as far as 80.091, a low not
seen since May 22, as investors reacted negatively to data that
showed the U.S. economy contracted at a 2.9 percent annualised
pace, the sharpest decline in five years.
The result was far worse than anyone had expected and sent
the benchmark U.S. 10-year yield skidding to a three-week low of
2.529 percent. It has since recovered to 2.561 percent.
While more recent data suggested the U.S. economy is still
on the recovery path, the extent of the slowdown was large
enough to spur dollar bears into action.
That saw the euro bounce to a three-week high of $1.3652
, while the Australian dollar popped back above 94 U.S.
cents from a one-week low of $0.9354.
Sterling climbed to $1.6984 from a one-week low of
$1.6952 and the Canadian dollar came within a hair's breadth of
a 5-1/2 month peak of C$1.0716 per USD set earlier in
Analysts at BNP Paribas said the GDP shock was only a
temporary setback for the dollar.
"We would not want to over-emphasize the importance of this
backward-looking report, especially as the Fed has already
highlighted it sees Q1 growth as distorted by weather and with
more current measures of economic activity broadly pointing to a
rebound in activity in Q2," they wrote in a note to clients.
"Although there are clear headwinds for the USD at the
moment...the fact that market positioning is overall flat on the
USD suggests risks of a large dollar sell-off are quite
The data, however, brought some excitement to a market that
has been suffering from something of a summer lull and the World
Unfortunately for Asia, another quiet session is in the
making given an absence of any significant economic news.
The next interesting piece of data comes again from the
United States, where a measure of consumer inflation watched by
the Federal Reserve will be released.
In Europe, the Bank of England is expected to announce tough
measures to rein in fast-rising British house prices, which
Governor Mark Carney has warned are the biggest domestic threat
to financial stability.
The EU summit also starts on Thursday with a working dinner
on the EU's long-term policy agenda before the contentious
decision on the Commission presidency on Friday.
(Editing by Shri Navaratnam)